Shadow Board advises caution
Most members of the NZIER Shadow Board recommended that the Reserve Bank (RBNZ) maintain the OCR at 5.5% in the upcoming monetary policy review on July 10.
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The advice is based on weaker growth, a slack labour market, and a continued easing in annual CPI inflation, indicating that previous OCR increases are effectively reducing inflation pressures.
However, domestic inflation pressures remain elevated, prompting a cautious approach.
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Current economic indicators
Ting Huang (pictured above), senior economist, highlighted the need for caution.
“The weaker growth and a slack labour market, along with the continued easing in annual CPI inflation, suggest that the OCR increases to date are reducing inflation pressures in the New Zealand economy,” Huang said.
Despite these signs of cooling, domestic inflation pressures warrant a conservative stance on adjusting the OCR, according to the Shadow Board.
Divergent views on future cuts
While the Shadow Board’s core view is an eventual easing of the OCR, with most members predicting a rate between 4.25% and 5.25% in a year’s time, opinions vary on the timing of potential cuts.
“Several members considered that the pressure for the RBNZ to start lowering the OCR early next year is increasing, given the weak economic momentum,” Huang said.
However, one member suggests waiting for further data to assess the risks before making any changes.
Looking ahead
The broad consensus reflects expectations that a cooling economy and easing inflation pressures will create room for RBNZ to begin an easing cycle next year.
“There is justification for a cut in the OCR given the deteriorating economic outlook,” one Shadow Board member said.
Nonetheless, the recommendation to keep the OCR steady at 5.5% underscores the importance of a cautious and data-driven approach.
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