Experts call for caution, suggest potential OCR cuts in the future
The NZIER Monetary Policy Shadow Board has unanimously recommended the Reserve Bank (RBNZ) to maintain the OCR at 5.5% during its upcoming Monetary Policy Review on April 10.
Inflation and economic outlook
Members of the Shadow Board acknowledged that inflation is on a downward trajectory, yet uncertainty looms over whether this trend will suffice to meet the annual CPI inflation targets in the near term.
“The general view was that it would be prudent for the central bank to wait to assess how the economy will track over the coming months, given uncertainty over the global growth outlook and the new government’s priorities,” said Christina Leung (pictured above), NZIER deputy chief executive (Auckland) and head of membership.
Future rate adjustments anticipated
Looking ahead, the majority of the Shadow Board anticipates a need to ease the OCR within the next year, suggesting a likely adjustment to either 5% or 5.25%. This view aligns with the assessment that inflationary pressures in New Zealand are diminishing, potentially allowing for a future reduction in the OCR. Nonetheless, a cautious approach remains advised due to possible inflationary risks.
Viv Hall, of the Victoria University of Wellington, said the OCR should remain at 5.5% for some time yet, given the persistent core and non-tradables inflation.
Jarrod Kerr, Kiwibank chief economist, said the bank anticipates inflation to drop below 3% by the September quarter, making a case for OCR cuts by November.
Kelly Eckhold, chief economist of Westpac New Zealand, suggested the possibility of rate cuts by April 2025, dependent on labour market adjustments and inflationary pressures.
Dennis Wesselbaum, of the University of Otago, noted the slow decrease in inflation and stagnant growth as reasons for the current OCR stance, with an earlier cut not being off the table.
Kerry Gupwell, of Boffa Miskell, observed economic stagnation due to governmental changes, advocating for no immediate OCR changes but open to reductions later in the year or in 2025.
The collective insights of the Shadow Board highlighted a broad consensus for maintaining the current OCR rate amidst inflation and economic uncertainties, with a forward-looking perspective on potential easing as conditions allow, NZIER reported.
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