Economists disagree on timing, not direction — rate rises are coming
New Zealand's economic outlook has reached a pivot point, according to the NZIER Monetary Policy Shadow Board's latest release ahead of the Reserve Bank's 8 July review.
On balance, members recommend holding the official cash rate at 2.25%, but the panel itself describes the decision as having "become a line-ball call" against a 25-basis-point hike.
Those favouring an immediate move made their case in blunt terms. BNZ head of research Stephen Toplis (pictured left) said "interest rates need to be raised towards neutral as soon as possible", while Victoria University professor Viv Hall argued the OCR "should therefore be increased to 2.50% at the upcoming meeting".
Others urged patience. Kiwibank chief economist Jarrod Kerr (pictured center) described the recent price spike as a temporary supply shock now unwinding, arguing simply that "there's no need to jump at shadows". Boffa Miskell chief executive Kerry Gupwell called it "finely balanced", saying he would "prefer to hold at 2.25% in July" for one more round of data before backing a move.
That split isn't confined to the Shadow Board. Heading into Wednesday's decision, financial markets are pricing a 75% chance of a hike, even as ASB and Westpac have swung to expecting a hold and ANZ maintains its call for a rise to 2.5%.
Consensus builds beyond July
Despite the split on timing, members agree the RBNZ should raise the OCR over the coming year, with individual settings for the 12-month outlook centred around 3% to 3.25%, with soft demand and an elevated unemployment rate cited as reasons for caution over the pace of any tightening.
What it means for advisers
For mortgage advisers, the message is that near-term stability shouldn't be mistaken for a settled rate environment.
Westpac chief economist Kelly Eckhold (pictured right) noted the case for an eventual increase "remains solid", even as reduced urgency around energy prices points to a wait for June quarter CPI data before revisiting the question in September. With most panel members expecting the RBNZ to be tightening again within a year, clients weighing up fixed-term lengths now face a narrowing window before borrowing costs likely start climbing.
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