NZIER shadow board recommends OCR cut but ANZ's Cameron Bagrie says RBNZ's decision may not be as clear cut as many think

Although the New Zealand Institute of Economic Research's Monetary Policy Shadow Board is recommending the Reserve Bank cuts the Official Cash Rate tomorrow, one member is suggesting cutting may not be the straight forward decision the market anticipates.

"I’m not convinced the decision this time is as clear cut as the market is thinking (with) a cut 90% priced," ANZ chief economist Cameron Bagrie says in the NZIER Shadow Board's release.

"Yes the economy is sluggish and inflation is low. But the NZ dollar has come a long, long way and monetary conditions have loosened a lot," Bagrie, one of nine shadow board members, adds.

Overall the Shadow Board is recommending the Reserve Bank cuts the OCR by 25 basis points to 2.75% on Thursday as it's widely expected to do.

“Recent activity indicators continue to point to a softening growth outlook. However, there was a wide range of views amongst the Shadow Board this round, with some calling for the OCR to be left unchanged,” says Christina Leung, senior economist at NZIER.

“Headline inflation is low, but the housing market remains strong and the recent sharp depreciation in the NZ dollar has contributed to a loosening in monetary conditions. The Reserve Bank needs to balance the economic risks, as well as take into account the potential for further surges in asset prices and the consequences of a sharp correction down the track," Leung says.

"The Shadow Board’s average recommended interest rate is down to 2.80% from 3.00% in July."