The Reserve Bank is universally expected to leave the Official Cash Rate unchanged at 5.5% during its review this week, but some experts on NZIER's 'Shadow Board' think the OCR should be hiked again.
The NZIER's Shadow Board is a nine-strong panel of industry leaders, academics and economists who are asked for their views before every OCR decision as to what should happen now and in future.
In the latest shadow board release, the majority of participants agree that the OCR should be kept unchanged in Wednesday's decision.
However, two members recommended a 25 basis-point increase in the OCR now. They were concerned about the stickiness of domestic inflation pressures and the continued increase in employment, which seems to suggest more work now is needed for the Reserve Bank to sufficiently bring inflation down.
Victoria University professor Viv Hall (one of the two shadow board members in favour of a hike) noted that core/non-tradables [domestic] inflation remains elevated, "and employment continues above its maximum sustainable level".
"A further 25 basis point increase is therefore warranted now rather than later."
Westpac chief economist Kelly Eckhold, who also said there should be a 25 point OCR rise, said inflation pressures "remain elevated and sticky", while labour markets may take some time to sufficiently ease to bring inflation down sufficiently. He noted that the housing market "has found a base and could support demand from later this year", while downside risks come from the weaker external situation, especially in China.
Kerry Gupwell, CEO of environmental planning and design consultancy Boffa Miskell said while he doesn’t see a change in the OCR this round, "I believe there is ongoing inflationary pressure (strong migration, the housing market seemingly picking up, and employment remains strong) which may lead to a further increase before the end of the year".
BNZ head of research Stephen Toplis said the risks that interest rates are currently too low "is rising".
"But so too is the risk that rates are too high. Our central perception of what is right is unchanged but the distribution curve around this is flattening."
Among other shadow board members, Kiwibank chief economist Jarrod Kerr was pretty confident the RBNZ is not for budging.
"The RBNZ will keep the cash rate unchanged at 5.5%, the peak in this cycle. The RBNZ were crystal clear in their messaging in May. And the RBNZ will be crystal clear in the messaging in August. The cash rate has peaked at 5.5% and will stay there until the RBNZ is convinced inflation will return to target. The next move will be a rate cut and could come as soon as February next year."
University of Otago associate professor Dennis Wesselbaum said "on balance", there is nothing suggesting changing the OCR at this time.
Sharesies CEO Brooke Roberts said she expected the Reserve Bank will hold the OCR at 5.5% in this decision.
"While we are seeing in inflation ease, it isn't yet at the levels mandated. We’ve seen investor confidence begin to increase again through the Sharesies index. Signs that people are thinking our economic situation may be stabilising and opting for more growth focus again. Interest rates are still flowing through to homeowners’ pockets, and we expect this to continue to reduce inflationary growth," she said.
Regarding where the OCR should be in a year, the shadow board’s core view ranged from 4.50% to 5.75% and centred on an OCR of 5.25%.
NZIER said while most members did not see the need for the Reserve Bank to increase the OCR in the August meeting, there were increased concerns over the potential upside risks from strong migration, potential pick-up in the housing market and continued strong growth in employment.
"It remains crucial for the Reserve Bank to closely monitor the impact of previous OCR increases and risks to inflation pressures in the New Zealand economy," NZIER said.
17 Comments
Like I keep saying, the banks are doing their own thing anyway but I guess if the RBNZ cranks up rates the banks then feel justified in increasing rates, its like the you know someone else is to blame. Expect some "Adjustment" in November but not before, its election time didn't you all know.
I do not see an increase this meeting, the brakes are on and the economy is slowing, diary forecast is very effective like a 50bps lift, so now no need, wallets are shut or shutting everywhere, no one in self employment is enjoying this ..... and I am hearing of redundancies all over the place, but the news is not reporting like the GFC.....
Hard disagree. If anything there is too much news. What is not being reported? What big redundancies are happening in NZ that RNZ or Herald or Stuff or Newstalk won't report. Or are you just being a tiny bit silly? The truth is we are still in maximum employment territory but some sectors (construction) are beginning to see a gap in forward work. And we know this because.... it is being reported.
"In just one month the number of people receiving a main benefit has risen by almost 3,000.
Data released today shows that the percentage of the working-age population dependent on a main benefit rose from 11.2% at the end of June 2023 to 11.3% at the end of July 2023."
Struggle to read it as the welfare system is such a disaster zone. Not good for the mental health.
[edit: forced myself to.....commentary-monthly-benefits-update-july-2023.pdf (msd.govt.nz) "The gap between all main benefit grants and exits has been widening since May 2023, with the number of grants being higher than the number of exits"].
As per usual - just before the sticky brown stuff really hits the whirly thing at a high rate of knots - too many people see past results as an accurate reflection of what is about to come. Such people see markets turning, too much employment, economic activity about to increase, etc. etc.
If things play out as they have in the past when a central bank suddenly and forcefully raises interest rates - yes, there are stages and a timeline that should be well known but apparently aren't - we should see people and businesses running out of money about now, their cashflow buffers at empty. The next 3-6 months will be harsh. And all suggestions of further OCR hikes will look absurd - as they should now.
It doesnt work this method anymore as theres too much debt, raising the OCR has not and will not curb inflation, its been over a year of raising the OCR and inflation has not come down its bullshit. The only out is to keep printing money because its a huge Ponzi scheme of made up currency. Im sticking to buying income producing assets and letting inflation deflate my debt because 2025 is going to be the quickest doubling of asset values in NZ history.
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