The experts are overwhelmingly in favour of the Reserve Bank keeping the Official Cash Rate unchanged this week - but do see it having to rise in the coming year

The New Zealand Economic Research (NZIER) panel of experts watching what the Reserve Bank (RBNZ) will do this week are overwhelmingly in favour of the Official Cash Rate being kept on hold at 2.25% but are equally as definite that  interest rates will have to rise over the next year.

Ahead of Wednesday's OCR decision financial markets are pricing in a minute chance (4%) that the RBNZ will move rates this week, but are fully pricing in a 25 basis-point rise by September.

Before 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 Shadow Board members agreed that keeping the OCR on hold is appropriate for now, given the high degree of uncertainty over the oil price shock in the wake of the US-Israel war against Iran, when the New Zealand economy is still recovering.

"The members stressed that the central bank should sit tight and look through the impact of the oil price shock on inflation," she said

But regarding where the OCR should be in a year, she said the majority of Shadow Board members picked an OCR ranging from 2.50% to 3.00%.

"This reflects the Shadow Board’s broad consensus that the RBNZ should raise the OCR over the coming year. Members expressed concerns about the potential second-round effects of the oil price shock, which could keep inflation persistently high and lead to unanchored inflation expectations.

"The Shadow Board viewed that RBNZ should take a data-dependent approach over the coming year, to gauge the impacts of the oil price shock on inflation and demand in the New Zealand economy. Two members highlighted that the RBNZ now faces an even tougher balancing act in supporting activity while containing inflation," Huang said.

In terms of some of the individual views of Shadow Board members when looking ahead, BNZ head of research Stephen Toplis said it’s "impossible to say anything sensible at this stage" other than that the spread of potential outcomes "is one of the greatest that we have ever seen". 

Business NZ economist John Pask said the RBNZ "is in a bind".  

"Do they raise the OCR to try and burn off rising inflationary expectations but risk knee-capping the NZ economy which has improved of late?  My view is given massive global uncertainty at present, they should sit tight for now but be ready to move as the potential fall-out associated with the current Iran conflict evolves."

Kiwibank chief economist Jarrod Kerr said talks of rate hikes "are overdone and premature".

"A supply shock should be 'looked through', and it’s the demand shock where we get worried. We are already seeing demand destruction, and we’re only dealing with a price hike. Supply restrictions are when we are truly tested. This is not Covid… because the 'lockup' (fuel rationing) scenario is far worse. The central bank will need time, a lot of time, to gauge the impacts. Wholesale rates are too high, in our view, and incorrectly price the risks of inflation versus demand."

Associate Professor,  University of Otago, Dennis Wesselbaum said inflation expectations continue trending up "and, obviously, CPI inflation in [the first quarter of the year] will be higher given the current oil price shock".

"The key question is the persistence of the shock. Given the dovish policy throughout 2025, increases might have to come sooner rather than later – but keeping the rate stable and learning more about the shock seems to be the best course of action right now."

Westpac chief economist Kelly Eckhold said 'real' interest rates are "likely to be too low soon '.

"Left too long, risks of entrenched inflation would rise once the war concerns recede. Right now, we need information to assess how quickly we need to move and whether financial stability and exchange rate concerns will become prominent. We have time to assess."