NZIER’s Shadow Board sees little need to change OCR outlook

20 March 2018

NZIER’s Monetary Policy Shadow Board largely kept unchanged its views on what the Reserve Bank should do with the Official Cash Rate. The Shadow Board continues to recommend the OCR be left on hold this Thursday at 1.75 percent. With signs inflation remains contained, Board members continued to see no urgency for the Reserve Bank to start tightening monetary policy.

“Although the risk of inflation remaining persistently low has dissipated, there is little sign of any broad-based acceleration in inflation pressures in the New Zealand economy. Added to that is lingering uncertainty over the effects of new Government policies, which is seeing businesses become more cautious about longer term planning” said Christina Leung, Principal Economist at NZIER.

“Reflecting these recent developments, most Shadow Board members’ recommendations for the OCR remain unchanged. A slight tightening bias remains appropriate, but there is no urgency to lift the OCR.”

Figure 1 NZIER’s Shadow Board’s views almost unchanged from last meeting

* distribution may not add up to 100% due to rounding

Source: NZIER Monetary Policy Shadow Board

Figure 2 Individual participants’ recommended rate settings – 16 March 2018

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 should keep the OCR steady. Confidence is returning to the business sector and with no signs of inflation we'd like to see a few more runs on the board before any tightening programme.
Arthur Grimes Inflationary pressures are gradually picking up globally, so a very slight bias towards tightening is indicated. However current conditions indicate that no change is still the most sensible immediate option.
Michael Gordon No change to our assessment. Low inflation and a subdued growth patch mean that the Reserve Bank will need to keep interest rates low for an extended period.
Kirk Hope No comment.
Viv Hall No new evidence of enduring significance, so keep the OCR at 1.75 percent.
Stephen Toplis Leading indicators suggest inflationary pressure has built further but recent actual price data suggests significant downside risk for inflation. On balance then we see no reason to change our probabilistic distribution.
Prasannai Gai No comment.
Jeremy Couchman Until there is clear evidence that inflation pressure is building there is little need to change monetary policy settings. We expect inflation to start picking up from the second half of 2018, as economic growth lifts, wage inflation rises, and capacity constraints become more widespread. We expect the RBNZ to start gradually lifting the OCR from May 2019.
Kerry Gupwell It would appear that confidence in the economic outlook has taken a cautious uplift since the election result but I believe businesses still feel a little jittery as a result of continuing uncertainty about government policy details. Inflation doesn’t appear to be an issue but underlying inflationary pressures are ever present. In this environment I believe the OCR should remain unchanged.

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 8 May 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