NZIER’s Shadow Board divided on where OCR should be

Increased divergence in views amongst the NZIER Monetary Policy Shadow Board on what the OCR.
Shadow Board members were sceptical about whether a further lowering of interest rates would boost activity and headline inflation.

In recent reports, there has been an increased divergence in views amongst the NZIER Monetary Policy Shadow Board on what the OCR should be at the OCR Review this Wednesday.

"This widening in the range of views follows the Reserve Bank’s surprise decision to cut the OCR by 50 basis points at its August meeting. Although Shadow Board members generally called for keeping the OCR on hold, some saw a higher OCR as appropriate. The views were taken before the release of June quarter GDP.

The Reserve Bank surprised markets with a greater-than-expected OCR cut, and left the door open to further easing. A deterioration in the global growth outlook appears to be their main concern, with the extensive easing by other central banks a primary influence given the effects on the exchange rate.

However, many Shadow Board members were sceptical about whether a further lowering of interest rates would boost activity and headline inflation. Some highlighted the financial stability risks with having monetary policy set too low, particularly with the effects on asset price inflation.” said Christina Leung, Principal Economist at NZIER."

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