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Keep interest rates low or lower, NZIER "shadow board" tells RBNZ

Tuesday 6th March 2012 1 Comment

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The Reserve Bank should keep the official cash rate at a record low 2.5 percent, or even cut the rate, according to the NZIER’s ‘shadow board’, which gives its views ahead of the central bank’s Monetary Policy Statement.

The shadow board is made up of the chief economists of ANZ National Bank, Westpac and Bank of New Zealand, the NZIER, academics, lobbyists and company executives from Steel & Tube and Warehouse Group. They were asked to rate their preferences for where the OCR should be.

Keeping the OCR unchanged at 2.5 percent got a 68 percent weighting, well above the next most-popular, a cut to 2.25 percent, with a 16 percent weighting. Support for an OCR of 2 percent garnered a 10 percent weighting while a 25 basis point increase to 2.75 percent attracted just 5 percent.

NZIER principal economist Shamubeel Eaqub was the strongest advocate for lower rates, with his biggest preference for an OCR of 2 percent. Dave Taylor, chief executive of building supplies company Steel & Tube, most favoured a quarter point cut to 2.25 percent and BNZ head of research Stephen Toplis saw merit in both an increase or a decrease.

The shadow board’s prevailing view is in step with broader expectations in financial markets, with all 15 economists in a Reuters survey predicting Governor Alan Bollard will leave the OCR unchanged on Thursday. Bollard will raise the OCR by 24 basis points over the next 12 months, according to the Overnight Interest Swap curve.

This week’s Monetary Policy Statement will be the first full update of the central bank’s forecasts since December and in the ensuing three months government figures have shown inflation pressures fell in the fourth quarter. At the same time, the trade-weighted index has climbed to 72.35, keeping a lid on imported inflation. The RBNZ’s December forecast was for the TWI to average 67 in the first three months of 2012.

Companies have trimmed their expectations for inflation over the next two years, cutting their one-year expectation to 2.24 percent, from 2.7 percent before Christmas, and their two-year expectation to 2.2 percent from 2.82 percent.

The Reserve Bank is required to keep inflation within a range of 1 percent to 3 percent on average over the medium term.

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Comments from our readers

On 7 March 2012 at 5:57 pm Alberre said:
OK for them but the other side of the coin are the uncomplaining very large group that need higher rates to survive.
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