Debate over RBNZ rate decision
The NZIER Shadow Board is split on whether the Reserve Bank (RBNZ) should reduce the OCR in its August monetary policy statement.
Over half of the members advocated for a 25-basis-point cut, citing the slowing economy and easing inflation. However, some members recommended holding the OCR at 5.5%, waiting for more economic data, said Ting Huang (pictured above), NZIER chief economist.
Calls for immediate easing
Several Shadow Board members argued that the current economic conditions warrant an immediate response from RBNZ.
“The economy is in distress. The labour market is softening rapidly... This demands an immediate response from the central bank,” said Stephen Toplis, a member of the Shadow Board and BNZ’s head of research.
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Market expectations support a cut
Jarrod Kerr, another Shadow Board member and Kiwibank chief economist, suggested that cutting the OCR by 25 basis points would align with market expectations and help lower wholesale interest rates.
“The economy needs support now,” Kerr said.
Forward-looking approach recommended
While some members advocated for a rate cut in August, others suggested waiting for additional data before making a decision.
“The weaker economy and inflation moving into the 1% to 3% range open the chance to reduce restrictions soon,” said Westpac NZ chief economist Kelly Eckhold, but cautioned that the extent of cuts will depend on how inflation and the economy respond.
Consensus on future easing
Despite differing opinions on the immediate course of action, there is a general consensus among the Shadow Board members that an easing cycle should begin soon.
Most members predict the OCR will be between 4% and 5% within the next year, reflecting a shift towards supporting the economy as conditions weaken.
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