NZIER’s Shadow Board says leave the OCR at 2.75%

28 October 2015

By Christina Leung

New Zealand Institute of Economic Research (Inc)
Media release
Embargoed until 1am Wednesday 28 October 2015
NZIER’s Monetary Policy Shadow Board recommends the Reserve Bank holds the interest rate at 2.75 percent in its Official Cash Rate announcement this Thursday.

“Inflation is very subdued and the Reserve Bank has said lower interest rates are likely. But recent developments include a marked recovery in global dairy prices and buoyant services sector demand that will boost the economy. So the Reserve Bank has time on its side and doesn’t need to lower interest rates right now.” said Christina Leung, Senior Economist at NZIER.

“There have also been encouraging signs of improvement in activity over in September and October. Businesses are reporting demand in their own business is holding up despite uncertainty about the New Zealand economy more generally.”
The Shadow Board’s average recommended interest rate is slightly down to 2.70 percent – from 2.80 percent in September.

Figure 1 NZIER’s Shadow Board favours interest rates to be kept on hold

Source: NZIER Monetary Policy Shadow Board

Figure 2 Individual participants’ recommended rate settings – 23 October 2015

Source: NZIER Monetary Policy Shadow Board

Table 1 Participant comments

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

Cameron Bagrie No comment.
Scott Gardiner Lack of confidence in the business sector and gloomy outlook in certain sectors may force a reduction.
Arthur Grimes There seems little reason to change the OCR in either direction at present, so a strong (and symmetric) status quo recommendation is shown.
Dominick Stephens No comment.
Phil O’Reilly No comment.
Viv Hall Downside global risks continue. But current domestic interest rate levels do not seem to be constraining increased real private consumption and investment, and growth rates of credit aggregates may be creeping back towards pre-GFC rates. Uncertainties remain for U.S. and Chinese economic growth rate paths, and for the timing of Federal Reserve interest rate movements. So, no compelling case for adjusting the OCR this round.
Stephen Toplis Any further reduction in the OCR from this point probably won’t make a material difference to GDP and CPI outcomes ahead, but would more surely exacerbate financial and asset market imbalances.
Dave Taylor No comment.
Prasanna Gai No comment.

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 Wednesday, 9 December 2015, ahead of the RBNZ’s December 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
christina.leung, 021 992 985