The experts agree the Reserve Bank should cut the Official Cash Rate again this week - but beyond that a wide range of views is starting to form

The experts are agreed that the Reserve Bank should cut the Official Cash Rate (OCR) again this week - but as to what should come next, the divergence of views is getting wider.

The New Zealand Institute of Economic Research (NZIER) convenes a panel of experts - academics, economists and business people - a 'Shadow Board' who state their views on what the Reserve Bank (RBNZ) should do ahead of every OCR decision.

Since August last year the RBNZ made six consecutive cuts to the OCR, taking it down from the cycle peak of 5.5% to the current 3.25%, before 'pausing' at July's review. However, there's general expectation that the review this week (Wednesday, August 20) will see another cut, taking the OCR down to 3.00%.

NZIER senior economist Ting Huang said the majority of members recommended that the RBNZ cut the OCR 25 points this week. However, she noted that the NZIER Monetary Policy Shadow Board’s view "ranged from a 50 basis-point OCR cut to no change".

"One member viewed that a 50 basis-point OCR cut now could be necessary to support recovery in the New Zealand economy. However, two members considered that the upward trending in near-term inflation warrants caution by the RBNZ in its OCR setting in August."

She said regarding where the OCR should be in a year’s time, members’ picks of the OCR "reflected a wide range of views from no further easing to some further easing in monetary policy required beyond August".

Shadow board member and BNZ head of research Stephen Toplis said GDP is contracting, the labour market continues to weaken, medium term inflationary pressures are limited. "This demands further easing from the central bank."

Kerry Gupwell, chief executive of Boffa Miskell said overall, "it feels like the economy has spluttered to a stall in Q2/mid-year, but the rural sector appears to be the exception".

"A further cut is justified, perhaps even by 50 basis points, rather than prolonging things."

Brooke Roberts CEO at Sharesies noted that inflation is within the target range [annual rate of 2.7% as of the June quarter].

"Unemployment rate has risen, signalling a loosening labour market. A modest cut now would support demand, ease currency pressures without jeopardising the inflation outlook."

John Pask, economist at BusinessNZ said while inflationary expectations by both businesses and consumers remain elevated, core inflation continues to decline with lower growth prospects and spare capacity in the economy, "justifying a further drop in the OCR".

Kiwibank chief economist Jarrod Kerr said the RBNZ should not have 'paused' in the last meeting.

"But here we are, awaiting a rate cut at their next meeting. Further rate cuts (plural) are inevitable. We should get a cut to 3%, followed by another, and then another, to 2.5%. The case for rate cuts has strengthened as the data weakens. The need for a stimulatory rate is clear, as neutral is not enough," he said.

However, Westpac chief economist Kelly Eckhold said there are signs that stronger commodity prices and low interest rates are supporting activity.

"The worst fears of a marked deterioration in the trade environment seem unfounded, so their role in making the case for further significant easing seems thin. Inflation seems likely to hug the top of the [1% to 3%] target range this year, limiting the need for further stimulus. It is time to wait and see how the economy responds to low interest rates and strong export returns," he said.

Dennis Wesselbaum, associate professor, University of Otago, said uncertainty around tariffs and trade add to a situation where inflation is upward trending, inflation expectations remain elevated, and unemployment ("as my proxy for economic activity") is upward trending. "On balance, [I] don’t see a strong case for changing."