NZIER’s Shadow Board continues to see little urgency for rate rise

08 August 2017

NZIER’s Monetary Policy Shadow Board again recommends that the Reserve Bank leave the Official Cash Rate on hold this Thursday at 1.75 percent. While the Shadow Board saw both upside and downside risks to the interest rate outlook, the general view was that a bias towards tightening was appropriate.  

The Shadow Board’s average recommended interest rate eased from 1.82 (last quarter) to 1.79 percent.

“Activity indicators remain healthy, with firms overall still looking to hire and invest. While inflation has eased recently, there are still pockets of inflationary pressure in sectors such as construction which face sustained pressure on capacity” said Christina Leung, Senior Economist at NZIER.

“Although inflation is back within the Reserve Bank’s 1 to 3 percent target band, there is limited risk of an acceleration. The recent easing in inflation and softer than expected GDP adds to the case that there is little urgency to lift the OCR.”

Figure 1 NZIER’s Shadow Board recommends that the Reserve Bank remains on hold but leaning towards tightening interest rates

Source: NZIER Monetary Policy Shadow Board

Figure 2 Individual participants’ recommended rate settings – 3 August 2017

Source: NZIER Monetary Policy Shadow Board

Table 1 Participant comments

Participant comments are always optional and can be limited to 60 words.

Carolyn Luey We think the Reserve Bank ought to keep rates stable. Although lower inflation and a softer housing market point to the OCR heading down, we think it should look through the current numbers to see if it’s a trend. Fundamentals like unemployment and commodity prices point to pressures in the economy.
Arthur Grimes No comment.
Dominick Stephens The current level of the OCR is about right. But over the past month or two the balance of risks has tilted slightly towards lower interest rates - housing markets have weakened further, the building boom has lost some steam, GDP growth has been underwhelming, and the exchange rate has popped higher.
Kirk Hope No comment.
Viv Hall No case for an immediate shift in the OCR, either upwards or downwards, though I'm maintaining an upward bias for the medium term. Temporary influences on CPI inflation continue to be influential, around my slow-moving upward trend. 
Stephen Toplis The currency is up, inflation surprised to the downside, the housing market is softening and retail lending rates have risen. All these factors provide breathing space for the Reserve Bank. The need to tighten any time soon has thus diminished since May and June. We adjust our probabilities accordingly.
Dave Taylor No comment.
Prasanna Gai No comment.
Jeremy Couchman The current economic backdrop justifies a ‘wait-and-see’ approach to monetary policy. However, following recent softer domestic data and a stronger currency we see risks to the outlook as being more balanced. Inflation is still expected to return to at or around the middle of the RBNZ’s 1-3% target band in mid-2018, supporting gradual rate hikes from late 2018.

About the NZIER Monetary Policy Shadow Board

NZIER’s Monetary Policy Shadow Board is independent of the Reserve Bank of New Zealand. Individuals’ views are their own, not those of their respective organisations. The next Shadow Board release will be Tuesday 26 September, ahead of the RBNZ’s OCR Review. Past releases are available from the NZIER website:    

Shadow Board participants share out 100 points across possible interest rates to indicate what they believe is the most appropriate Official Cash Rate setting for the economy. Combined, these scores form a Shadow Board view ahead of each monetary policy decision.

Participants show where they think interest rates should be, not what they believe will happen.

The NZIER Monetary Policy Shadow Board aims to:

  • encourage informed debate on each interest rate decision
  • help inform how a Board structure might operate
  • explore how Board members could use probabilities to express uncertainty.

For further information, please contact:
Christina Leung, Senior Economist & Head of Membership Services, 021 992 985