NZIER’s Shadow Board recommends the RBNZ hold the OCR steady

07 February 2017

New Zealand Institute of Economic Research (Inc)
Media release
For release 10am Tuesday 7 February 2017

NZIER’s Monetary Policy Shadow Board recommends the Reserve Bank keeps the Official Cash rate on hold this Thursday at 1.75 percent. While the Shadow Board was overwhelmingly in favour of leaving the OCR unchanged for now, it has shifted to a tightening bias.

“Annual inflation has edged back up to within the Reserve Bank’s 1 to 3 percent target band, and there is solid momentum in the New Zealand economy. The Shadow Board sees very little need for further easing.” said Christina Leung, Senior Economist at NZIER.

“The Shadow Board recommends the Reserve Bank leaves the OCR at 1.75 percent this Thursday. With inflation picking up we expect the Reserve Bank to leave the OCR on hold until mid-2018 before embarking on a gradual tightening cycle.”

The Shadow Board’s average recommended interest rate fell from 1.90 percent last November to 1.79 percent in February. The shift in the Shadow Board to a tightening bias follows the 25bp cut to the OCR last November.

Figure 1 NZIER’s Shadow Board recommends the Reserve Bank remains on hold but now with a tightening bias in the wake of the OCR cut last November

Source: NZIER Monetary Policy Shadow Board

Figure 2 Individual participants’ recommended rate settings – 1 February 2017

Source: NZIER Monetary Policy Shadow Board

Table 1 Participant comments

Carolyn Luey We believe the Reserve Bank should leave rates unchanged. Small businesses (especially in construction and tourism) tell us they are doing really well, while the dairy price effect has subsided – so cuts are off the table for the foreseeable future. Even though inflation is just starting to tick up, we believe the Bank should hold – especially given uncertainty in the global economy.
Arthur Grimes With inflation being within the target range for the foreseeable future, there is no major reason to raise or lower the OCR at this time.
Michael Gordon Inflation is back within the target range, but with a strong NZ dollar and only modest economic growth it will struggle to push much higher from here. The need for the RBNZ to reverse its OCR cuts looks rather distant.
Kirk Hope No comment.
Viv Hall Temporary influences continue to affect headline CPI inflation measures, but trend CPI inflation continues to pick up modestly. I expect the next OCR movement to be upwards, but there is not yet sufficient evidence to justify sustained OCR increases.
Stephen Toplis Inflation continues to be held down by a strong NZD but we believe that a rising CPI, tight labour market, ongoing strength in housing and solid GDP growth all argue that the cash rate should be at least as high as where it is now.
Dave Taylor No comment.
Prasanna Gai No comment.
Zoe Wallis Downside risks (particularly on the international front) have abated for now but could easily reappear this year. The domestic economy is performing well and inflation is heading in the right direction, but it is too early to talk about rate hikes at this stage.

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 21 March, 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, Senior Economist & Head of Membership Services, 021 992 985