The experts think in a years' time the OCR should be in a range between 2.50% and 2.75%, with views divided on how much further easing in monetary policy should be required beyond October

A majority of the New Zealand Economic Research (NZIER) experts watching what the Reserve Bank (RBNZ) will do this week reckon that the Official Cash Rate will be cut by 25 basis points.

The big debate ahead of Wednesday's OCR decision has been not whether there will be a cut - that's universally expected - but the size. 

Since August last year the RBNZ has cut the OCR from the cycle peak of 5.5% to the current 3.00%. The RBNZ itself has strongly indicated it will lower the OCR to 2.5% by the end of the year (and there's just two more OCR reviews before then), but has remained open about the speed at which that might be done. So, there's much debate about whether this week's cut will be 25bps or 50bps.

The financial markets are pretty much pricing in expectation of a 25bps cut, but a majority of the major bank economists are shooting for a 50 pointer.

Ahead of every OCR decision, the 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.

NZIER senior economist Ting Huang says the majority call on the 'board' for a 25bps cut "reflects the view that excess capacity in the New Zealand economy provides scope for a small cut to support a recovery in activity without affecting the inflation outlook".

However, she noted that several members considered that the much weaker-than-expected June quarter GDP warrants a 50 basis-point cut now to provide the stimulus required for recovery.

"One member suggested that the central bank should keep the OCR on hold, given the recent spike in inflation and that the impact of the OCR cuts to date is still working through the economy."

Regarding where the OCR should be in a year’s time, Huang says board members’ picks centred on a range between 2.50% and 2.75%.

"This reflects the Shadow Board’s divided views on how much further easing in monetary policy should be required beyond October. One member highlighted that the RBNZ should take a cautious approach in its OCR decisions over the coming year to avoid over-stimulation that could cause inflation to rebound upwards. Members who favoured more easing viewed that further monetary easing is required to support a sustained economic recovery," Huang said.

In terms of some of the individual views expressed among the Shadow Board members, Motu senior fellow and professor at Victoria University of Wellington Arthur Grimes said the CPI inflation rate is predicted by the RBNZ and other forecasters to be around 2% in a year’s time after incorporating a small projected near-term cut in the OCR.

"This outlook suggests that the projected monetary policy stance is broadly appropriate given the target. A small cut in the OCR now is consistent with this outlook, bringing the real OCR to slightly below 1%, which is a slightly stimulatory position.

"A key consideration for the Bank [RBNZ] needs to be that its actions do not cause the inflation rate to rebound upwards and that monetary stimulation does not cause another house price surge, which would be a damaging outcome if the OCR were cut too strongly," Grimes said.

However, Kerry Gupwell, chief executive of Boffa Miskell said the June quarter Q2 GDP result "suggests we hit an economic pothole. It felt like that at the time".

"While Q3 feels better, it’s marginal. The rural sector continues to do well, but other sectors continue to struggle. The geopolitical situation creates uncertainty, which is something we can’t control as a nation, but what we can do is focus more on domestic policy to create more certainty and confidence in a recovery. Namely things like RMA, national policy statements, regional deals, intensification, etc. A further cut is needed, perhaps even by 50 basis points."

Brooke Roberts CEO at Sharesies expected the OCR to be reduced by 25 basis points to 2.75%.

"Although inflation is within target range, growth remains weak, and spare capacity is becoming more evident in the labour market," she said.

John Pask, economist at BusinessNZ, said economic activity remains fragile "as evidenced by a number of forward looking indicators".

"There is justification for reducing the OCR by 50 basis points despite some short-term inflationary risks."

Shadow board member and Westpac chief economist Kelly Eckhold says economic progress "has been disappointing in the last three-four months, which raises questions on how long recovery will take".

"Excess capacity means a move down in inflation in a year seems assured. A risk is firms further retrench and push up unemployment which would further delay recovery. We need to get the OCR to a stimulatory level before Christmas. That will make 2026 easier to manage."