The economists are still convinced the Reserve Bank needs to get hiking interest rates - but business leaders are getting rather cooler on the idea.
That's one conclusion to be drawn from the NZIER's latest 'Shadow Board' release ahead of Wednesday's Official Cash Rate decision from the Reserve Bank (RBNZ).
The NZIER has an unofficial panel - a 'shadow board' comprised of economists, academics and business leaders - that offer views on what the RBNZ should be doing ahead of its decisions.
And while the view of the 'board' ahead of the RBNZ's last OCR decision in August was unanimously that interest rates needed to rise, the outbreak of Covid Delta came a day before that decision, forcing the RBNZ to back down and hold the OCR unchanged at the emergency setting of 0.25% it has now been on since March 2020.
The long lockdown that Auckland has been enduring since then has changed some views.
The NZIER said its 'shadow board' members in the business community highlighted the negative impact of the latest lockdown on businesses, with small to medium businesses hit particularly hard.
"This led to some Shadow Board members calling for monetary policy to be left unchanged at the upcoming meeting."
In contrast, other board members continued to see tightening of monetary policy as appropriate given the "intense inflation pressures" in the New Zealand economy.
"These inflation pressures reflect both strong demand and acute supply pressures. Besides the increase in broader inflation pressures, some Shadow Board members also highlighted the surge in asset prices that have resulted from monetary policy being too loose."
Among those looking for no change was Jo Tozer*, head of customer services at MYOB.
"New Zealand’s SME sector has borne the brunt of the latest Covid-19 Delta lockdown and ongoing restrictions. For many, revenue has fallen sharply, projects or sales have been delayed and work for this quarter will have been significantly disrupted," she said.
"In this immediate term given the current environment, increases to interest rates by the RBNZ would only put further pressure on local businesses who are already struggling."
Kerry Gupwell, chief executive of Boffa Miskell concurred.
"The latest lockdown has required the Government to provide additional support in terms of wage subsidies etc. How long can this yoyo-ing in and out of lockdowns go on?
"While recent labour market figures and inflation rate were clear signs that we needed a tightening in monetary policy, including an increase in the OCR, Delta complicated things, so there should be no change to the current settings for the moment. It’s all about the vaccine rollout now," he said.
However, Kirk Hope, chief executive of Business NZ thought despite significant uncertainty over the current Covid cases and potentially ongoing impact on output which make decision-making risky, the Reserve Bank "has little choice but to move on interest rate rises now given the continued significant rise in inflationary expectations".
"...The risk of not moving now on interest rate rises now is that the Reserve Bank may have to go much harder next year."
Stephen Toplis, head of research at BNZ said "there is no excuse" not to raise interest rates in New Zealand.
"...Least regrets mean the cash rate needs to be substantially higher."
Arthur Grimes of Motu and Victoria University said the Reserve Bank "is way behind the curve" when it comes to inflation.
"They have caused a hugely destructive rise in house prices and must now start to make amends by raising rates. A sell-down of some of their massive bondholdings is also warranted. This tightening applies even more firmly in the coming year."
Viv Hall, also of Victoria University says inflation pressures continue to become more persistent and there remains the risk of even further asset price inflation, "and the contribution of monetary conditions towards supporting maximum sustainable employment has been more than sufficient".
"Progressive OCR increases are now required, starting with an immediate increase of 25 bps."
Jarrod Kerr, Kiwibank chief economist said this "will be another awkward decision", for the RBNZ, given Auckland is likely to still be in lockdown level 3.
"A ‘considered’ hike of 25bp to 0.5% is most justified. But the explanation needs to respect the pains that the largest city is going through. As our strategy evolves from elimination with vaccinations to vaccinated and living with it, the economy has shown enough momentum to justify pulling back on emergency levels of stimulus."
And Michael Gordon, acting chief economist at Westpac, said domestic conditions "clearly warrant a move away from ultra-low interest rates".
"...Covid restrictions will remain a risk over the coming months, as our vaccination rate is still a long way from providing effective levels of protection."
*This was corrected from earlier versions of this article. Apologies.
We welcome your comments below. If you are not already registered, please register to comment
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.