NZIER’s Shadow Board‘s views on OCR broadly unchanged

09 May 2017

New Zealand Institute of Economic Research (Inc)
Media release
For release 10am Tuesday 9 May 2017

NZIER’s Monetary Policy Shadow Board continues to recommend the Reserve Bank leaves the Official Cash Rate on hold this Thursday at 1.75 percent. Similarly, the Shadow Board again sees a tightening bias as appropriate.  

“Annual CPI inflation has lifted back within the Reserve Bank’s 1-3 percent target band. Although this lift in headline inflation was largely driven by higher food and fuel prices, there are signs underlying inflation is also rising. Activity indicators also show continued momentum in the New Zealand economy” said Christina Leung, Senior Economist at NZIER.

“Nonetheless, the Shadow Board recommends the Reserve Bank continues to leave the OCR at 1.75 percent this Thursday. With heightened geopolitical risks abroad and signs of some easing in housing demand here in New Zealand, we expect the Reserve Bank to keep the OCR on hold until mid-2018 before embarking on a measured tightening cycle.”

The Shadow Board’s average recommended interest rate remained steady at 1.84 percent.  

Figure 1 NZIER’s Shadow Board again recommends the Reserve Bank remains on hold, with a slight tightening bias

Source: NZIER Monetary Policy Shadow Board

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

Source: NZIER Monetary Policy Shadow Board

Table 1 Participant comments

Carolyn Luey The RBNZ ought to hold the OCR, even though jobs numbers and inflation have ticked up. MYOB’s most recent Business Monitor Survey of SME owners found a slight softening of confidence in the sector, which we wouldn’t want to see exacerbated. We expect the Governor will signal rises are coming sooner rather than later, but a slowdown in Auckland house price increases has probably removed the immediate need to put the brakes on.
Arthur Grimes No comment.
Kirk Hope No comment.
Viv Hall After taking due account of recent temporary influences on CPI inflation, I'm recommending no change to the OCR but shading upwards my probability of an OCR increase. Timing for the latter is not yet determinable with any degree of certainty.
Craig Egbert While we can see why the cash rate might be kept where it is we, equally, do not share the central bank’s view that risks to the outlook are evenly balanced. We believe inflationary risks continue to rise, warranting a formal tightening bias.
Dave Taylor No comment.
Prasanna Gai No comment.
Zoe Wallis Inflation is now very comfortably back in RBNZ’s target band but price pressure remains concentrated in certain sectors. Expect to see a period of stability in the OCR before gradual rate hikes start in H2 2018. A further sustained depreciation in the NZ TWI could necessitate hikes sooner, but for now a softer growth profile is expected to keep inflation tracking at around 2%.

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 20 June, 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