NZIER’s Shadow Board recommends no OCR move amid uncertainty over new Government policies

07 November 2017

By Christina Leung

NZIER’s Monetary Policy Shadow Board continues to recommend the Reserve Bank leave the Official Cash Rate on hold this Thursday at 1.75 percent. Uncertainty over policies to be implemented by the new Government, and the effects of these on businesses and the housing market, were highlighted by the Shadow Board as reasons why a wait-and-see approach was prudent.

“The new Government has announced a raft of policies since taking office. While some of the increased spending has the potential to boost growth and inflation, there is also caution amongst households and businesses about the effects of some policies on other areas such as the labour market” said Christina Leung, Principal Economist at NZIER.

“The Shadow Board continues to see a mild tightening bias as appropriate, but with uncertainty over the effects of new Government policies on the growth and inflation outlook there is no urgency to lift the OCR.”

Figure 1 NZIER’s Shadow Board continues to recommend that the Reserve Bank remains on hold with slight tightening bias

Source: NZIER Monetary Policy Shadow Board

Figure 2 Individual participants’ recommended rate settings – 1 November 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 The change of government has introduced a measure of uncertainty into the business community so we think it’s prudent to keep the OCR steady. Businesses are watching to see how the new government’s policy programme unfolds, and with low inflation and house prices coming off the boil there is no immediate need to pump the brakes.
Arthur Grimes

No comment.

Dominick Stephens Recent events have introduced a lot of uncertainty, particularly around how Government policy will affect house prices and how the falling exchange rate will affect inflation. The range of possible outcomes is wider, but on balance the risks have shifted a little further to the downside.
Kirk Hope No comment.
Viv Hall No comment.
Stephen Toplis Given the huge uncertainties that abound, the RBNZ will not want to commit to a change in course. However, a much weaker NZD, further labour market tightening, the prospect of easier fiscal policy and, potentially, inflationary wage regulations all argue for an increased inflation track and heightened risk that interest rates need to be higher sooner.
Prasanna Gai No comment.
Zoe Wallis With the dust settling post-election we expect to see more inflation pressure coming through in the NZ economy in the year ahead. A lower NZ TWI, combined with on-going capacity pressures domestically, suggest that inflation pressure will continue to rise gradually from here – necessitating eventual interest rates hikes from late 2018.
Kerry Gupwell There is uncertainty over the new government’s policy details and the potential economic impact of those policies. While there is a sense of increased inflationary pressures due to the current political situation, I believe any change in the OCR would be premature at this stage. If there was to be a change it should be an increase in the rate.

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 Monday 5 February 2018, ahead of the RBNZ’s Monetary Policy Statement. 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, Principal Economist & Head of Membership Services, 021 992 985