Most NZIER shadow board members back holding New Zealand’s OCR at 2.25% in May (statement due at pm New Zealand time on May 27), citing weak growth and Iran war uncertainty, though all agree rates must rise over the coming year.
Summary:
Source: NZIER Monetary Policy Shadow Board
- The majority favour holding the OCR at 2.25% at the upcoming May Monetary Policy Statement, citing subdued growth, spare capacity, and ongoing uncertainty from the US-Israel war with Iran
- Three members argue tightening should begin now, pointing to a real interest rate that has been low or negative for an extended period and rising inflation pressures
- All members agree the OCR should be higher in twelve months, with most clustering around a 2.75% to 3.75% range
- Those favouring a hold stressed the oil price shock is supply-driven, not demand-driven, with unemployment heading toward 5.6% and last quarter’s GDP growth at just 0.2%
- Hawks on the board warned that delaying action risks entrenching low real rates and allowing second-round inflation effects to take hold
The majority of members on the NZIER Monetary Policy Shadow Board have recommended the Reserve Bank of New Zealand keep its Official Cash Rate on hold at 2.25% at the upcoming May Monetary Policy Statement, though the result masks a meaningful division of opinion over how long the pause can last.
Those favouring no change pointed to a combination of weak domestic conditions and external uncertainty. New Zealand’s economy retains spare capacity, GDP growth came in at just 0.2% last quarter, and unemployment is tracking toward 5.6%. Critically, several members argued the current inflation pressure is being driven by volatile oil and electricity prices, products of the US-Israel war with Iran rather than any overheating in domestic demand. Tightening into that environment, they argued, risks doing unnecessary damage.
Three members disagreed, pushing for an immediate start to the tightening cycle. Their case rested on the observation that the real OCR has been at or below zero for a prolonged period, a setting that was calibrated for very different inflation conditions. With headline CPI, non-tradable inflation, and two-year inflation expectations all running within or above the upper half of the 1% to 3% target band, some members said the case for action now is already clear. One described an immediate hike as a down payment on returning the OCR to more neutral levels in the 3% to 3.5% range.
The forward view produced broader agreement. All Shadow Board members expect the OCR to be higher in twelve months, with the majority centring on a range of 2.75% to 3.75%. The debate is less about direction than about timing, with data-dependent members preferring to wait for clearer signals from forward-looking indicators over coming weeks before committing to a path.
The Shadow Board’s release lands ahead of the RBNZ’s decision on May 27, providing a structured external read on where informed market and academic opinion sits.
2pm New Zealand time on the 27th is:
- 0200 GMT on the 27th
- 2200 US Eastern time on the 26th
