NZIER Shadow Board Advocates for OCR Hold Amid Economic Uncertainty
NZIER shadow board backs RBNZ hold this week (May 27) at 2.25% but rate rises seen ahead
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The NZIER Monetary Policy Shadow Board recommends maintaining New Zealand's Official Cash Rate (OCR) at 2.25% during the upcoming May 27 announcement, citing weak growth and external uncertainties, particularly from the US-Israel war with Iran. However, all members agree that rate increases are necessary within the next year.
- 01The NZIER Shadow Board's majority supports holding the OCR at 2.25% due to subdued domestic growth and external uncertainties.
- 02Three members advocate for immediate tightening, citing prolonged low real interest rates and rising inflation pressures.
- 03Current inflation is primarily driven by supply-side shocks, particularly volatile oil and electricity prices linked to geopolitical tensions.
- 04Unemployment is projected to rise to 5.6%, with last quarter's GDP growth at a mere 0.2%.
- 05All members anticipate a higher OCR in the next twelve months, with most projecting a target range of 2.75% to 3.75%.
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The NZIER Monetary Policy Shadow Board has largely recommended that the Reserve Bank of New Zealand (RBNZ) maintain the Official Cash Rate (OCR) at 2.25% during the upcoming Monetary Policy Statement on May 27. This recommendation stems from concerns over weak economic growth, which saw a GDP increase of only 0.2% last quarter, and rising unemployment expected to reach 5.6%. The board highlighted that current inflation pressures are largely due to supply-side factors, particularly volatile oil prices linked to the ongoing US-Israel war with Iran. While the majority favors holding rates steady, three members argue for immediate tightening, pointing to the prolonged period of negative real interest rates and the need to prevent entrenched inflation. Despite the current hold, all members agree that the OCR should rise over the next year, with most projecting a target range between 2.75% and 3.75%. The board's insights provide a critical external perspective ahead of the RBNZ's decision.
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The decision to hold the OCR affects borrowing costs for consumers and businesses, influencing economic activity in New Zealand.
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