Calls grow louder for RBNZ to ease
With Budget 2025 now delivered, attention has turned to the Reserve Bank’s May monetary policy statement, where the NZIER Monetary Policy Shadow Board is recommending an OCR cut - though opinions remain divided amid conflicting signals from inflation data and global uncertainty.
Calls for a 25bp cut lead recommendations
Nearly half of the Shadow Board members advocated for a 25 basis-point OCR cut, with one member pushing for a more aggressive 50bp reduction, citing the need for greater stimulus amid a fragile recovery. However, several members urged caution, recommending RBNZ hold the OCR steady in May.
Diverging views reflect economic ambiguity
The Shadow Board’s wide range of recommendations underscores the complexity of current economic conditions - further complicated by RBNZ’s new Tara-ā-Umanga survey which showed inflation expectations rising across all timeframes, with the key two-year rate at 2.54%, a shift that may complicate the case for further cuts.
Shadow Board member Stephen Toplis (pictured left), BNZ head of research, acknowledged this uncertainty.
“Uncertainty about the ‘right’ level for interest rates is extremely elevated. The spread of possible outcomes is wide,” Toplis said.
He maintained that downside risks to growth and inflation should outweigh upside concerns.
However, Viv Hall, Emeritus Professor in the School of Economics & Finance at Victoria University of Wellington, expressed a more cautious view, citing persistent inflation pressures.
“Inflation remains in the top half of the 1-3% range… On balance, therefore, the OCR should remain at 3.5% for this round,” Hall said.
John Pask, an economist at BusinessNZ, argued that spare capacity in the economy creates room for easing, but noted that geopolitical uncertainty could shift the inflation outlook in either direction.
Stronger action urged by some
Kiwibank chief economist Jarrod Kerr (pictured center) stood out with his support for a 50bp cut and a more aggressive rate path.
“A rate cut is all but guaranteed,” Kerr said. “We need to see a lowering in the OCR track. And a 50bp move next week is justified… So why muck around?
He argued current policy remains too restrictive following a “deep recession, easing inflation, and a developing trade war,” and said New Zealand needs a policy boost to support recovery.
Mixed projections for the year ahead
Looking ahead, most Shadow Board members projected the OCR should settle between 2.50% and 3.50% over the next year. While inflation risks remain, global economic softness could warrant further cuts.
Kelly Eckhold (pictured right), chief economist at Westpac NZ, called for moderation, recommending a 25bp cut in May and a pause before any further easing.
“It remains time to slow the pace of cuts… The current 25 bp cut seems appropriate but we should wait until August to assess again,” Eckhold said.
Arthur Grimes, a professor at the School of Government, Wellington School of Business and Government, echoed this view, suggesting stability may be more valuable than action in a volatile environment:
“It pays the RBNZ to be cautious… while a tiny easing may be warranted now, on balance, it makes sense for the RBNZ to delay any change decision until the next review,” he said.
Wait-and-see strategy gaining support
Several members emphasised the need for a wait-and-see approach. Dennis Wesselbaum, assistant professor at the University of Otago, summed up the dilemma.
“There is large uncertainty… On balance, and given the RBNZ’s mandate, it is probably time to wait for further cuts,” Wesselbaum said.
