Panel split on timing as oil and weaker dollar fuel price pressures
The New Zealand Institute of Economic Research (NZIER) Monetary Policy Shadow Board has backed a 25-basis-point increase in the official cash rate (OCR). The panel made its call before September quarter inflation data pushed most major banks the same way.
In findings released on 27 October, most panel members recommended that the Reserve Bank of New Zealand (RBNZ) lift the OCR from 2.75% to 3% at its Monetary Policy Review on 28 October. They cited rising fuel costs and a softer currency as reasons inflation could run hotter, and said the RBNZ should act now. Several members, however, preferred to give earlier increases more time to work through the economy.
Shadow Board members’ views are their own and do not represent their organisations.
The case for a hike
BNZ head of research Stephen Toplis (pictured upper left) said oil prices had surged, the dollar had weakened, growth had beaten expectations and core inflation had stayed high since September. “Required response: raise the cash rate,” he said.
Kiwibank chief economist Jarrod Kerr (pictured upper right) said he would prefer the RBNZ moved to 3% quickly and then signalled a long pause. He argued that the threat of further hikes was weighing on business confidence. “Hike next week if you must. But tell us that’s it for a while,” he said.
The case for patience
Westpac chief economist Kelly Eckhold (pictured lower left) said the medium-term inflation outlook had not changed, even if the short-term picture looked more threatening. He expects rates to be significantly higher in a year but said “there is no need to rush to those settings while the labour market remains cyclically weak”.
Sharesies chief executive Brooke Roberts favoured holding at 2.75%, with one final increase around year-end only if imported price pressures persist. She said inflation expectations remain anchored and labour market slack is growing, so “the case for pre-emptive further tightening is weak”.
Where the OCR is heading
The RBNZ lifted the OCR to 2.75% in September, its second hike since July. Most Shadow Board members expect it to keep tightening over the next 12 months, with year-ahead estimates ranging from 3% to 4%. Some said the pace should depend on how underlying inflation, expectations and the recovery develop.
Members submitted their views on 21 October, a day before September quarter inflation data showed core measures firming. Since then, most major banks have backed an October OCR hike, with Kiwibank’s economists the outlier. ASB has gone further, tipping three more rate hikes to a 3.5% peak.
NZIER’s next Shadow Board release is due on 7 December.
Read the NZIER announcement here.
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