NZIER Shadow Board recommends RBNZ to keep OCR unchanged at 5.5% in August

The latest recommendations from most Shadow Board members of the New Zealand Institute of Economic Research (NZIER), published early Monday in Auckland, state that the Reserve Bank of New Zealand (RBNZ) should leave the Official Cash Rate (OCR) unchanged at 5.50% when it meets this Wednesday for its monetary policy decision.

In their defense, the NZIER Shadow Board members signaled the aftershocks of the previous rate hikes in the housing market as the key catalyst.

It’s worth noting that two policymakers are recommending the RBNZ to lift the benchmark rates by 25 basis points (bps) in August, by citing the stickiness of domestic inflation and strong employment.

Key takeaways

Regarding where the OCR should be in a year, the Shadow Board’s core view ranged from 4.50 percent to 5.75 percent and centered on an OCR of 5.25 percent. 

While most members did not see the need for the Reserve Bank to increase the OCR in the August meeting, there were increased concerns over the potential upside risks from strong migration, potential pick-up in the housing market and continued strong growth in employment.

Market reaction

Despite the downbeat news, NZD/USD remains mostly unaffected while defending the week-start uptick to 0.5990, up 0.10% intraday by the press time. The reason could be linked to the Kiwi pair’s preparations for Wednesday’s RBNZ, as well as the already priced-in move which dragged the quote to the yearly low the last week.