There's an unusual degree of disagreement among the panel of experts the NZIER regularly consults for opinions on what will happen to the Official Cash Rate.
The Reserve Bank's Monetary Policy Committee is set to have its latest review of the OCR, currently at 5.25%, on Wednesday, October 9.
The nine members of NZIER's 'Shadow Board' all reckon there will be a cut. But five of them say it'll be a 50 basis point cut and four say it will be 25.
Bank economists have all coalesced behind a 50-point pick over the last week - and there's three of them on the nine-strong panel. But outside of the world of the economists there's definitely some different views of what's appropriate in terms of the speed in which the RBNZ - having started to cut rates in August - conducts this 'easing cycle'.
NZIER senior economist Ting Huang said those 'Shadow Board' members who recommended a 50 basis-point cut were concerned about the continued weakness and increased excess capacity in the New Zealand economy.
"They also cited the easing in headline inflation and inflation expectations, which warrant a less-restrictive interest rate setting.
"The rest of the members viewed a 25 basis-point cut is more appropriate for now, given some upside risks in non-tradable inflation remain," she said.
Very firmly in the 50-point camp is shadow board member Jarrod Kerr, Kiwibank chief economist.
"The decision to cut rates was made in August. It is now a decision around the pace and magnitude of cuts," he said.
"The discussion should involve a 50bp move in both October and November. Policy works with a long lag, and the economy needs stimulus. The recession is ongoing and is coming up two years. Interest rates are clearly restrictive, and returning to more neutral levels requires at least 250bps."
In the corner for 25 points is Viv Hall, professor at Victoria University of Wellington, who said a further 25bp cut in the OCR is justified now.
"But the path of further cuts must be data dependent. Some upside risks remain with non- tradables/underlying inflation and with cost pressures.
Arthur Grimes of Motu Research and associate professor at Victoria University of Wellington said a "gradual reduction" of the OCR over the next 12 months is appropriate based on the current economic outlook.
"Naturally, this path could change depending on shocks to the economy."
Dennis Wesselbaum, associate professor at University of Otago said GDP numbers (particularly manufacturing, trade and transport) looked weak, and jobseeker support is increasing.
"Inflation, on the other hand, is too high and, according to GDPlive, appears not to be falling as fast any more. A small cut (25bp) seems to be a good compromise."
Kerry Gupwell chief executive of environmental planning and design consultancy Boffa Miskell said he thought there will be a reduction of 25 basis points.
"But I do think there is a case for a more aggressive reduction given the continued sluggish growth."
Kelly Eckhold, Westpac chief economist said headline inflation and expectations no longer look to justify very tight interest rate settings.
"A strong case can be made to quickly adjust interest rates towards neutral levels to stabilise output and employment. Given the long gap between [RBNZ OCR] meetings from November to February, a strong case exists to move the OCR down more quickly before Christmas."
Regarding where the 'Shadow Board' sees the OCR in 12 months' time, NZIER's Huang said they thought the RBNZ should continue with the easing cycle over the coming year, with the majority picking an OCR ranging between 3.5% and 4.5%.
"Some members recommended a gradual easing in the OCR, reflecting their views that the RBNZ should take a more cautious and data-dependent approach. Other members viewed that the RBNZ should ease the OCR more rapidly. They considered that the weak economic conditions suggest the need for more stimulus over the coming year," Huang said.
58 Comments
My opinion - I think .75 must be considered - push the panic button so to speak - reasons - building consent down / alliance meat factory shut shop / pulp mills shutting / empty shops / retail down / households buckling / 2 year recession / govt is not spending .....the economy is in a bad way, stimulus needed.
One cannot tax their way to financial prosperity. Labour already tried a number of envy taxes & penalties, and everything got worse by historic margins. The answer certainly is not attempting to penalize those who have, for those who have not. Typical socialist mantra, advocating for "equality", as long as we are all equally poor. More taxes will not bring tenants closer to home ownership - this has been tried numerous times & failed every time. One is focusing on the wrong areas. We should be looking to incentivize FHBs towards ownership, not attempt to penalize those who already own homes.
Doesn't matter what you say around tax as the current pension setup will go bust in a number of years unless tax setup is changed, therefore the youth are already guaranteed to pay more than their parents across their lifetimes. The sooner they realise it, the sooner we can vote for change. I dont oppose to more tax given how many self-employed people rort the tax system and those in property.
The youth have already set the expectation that they won't be receiving a pension come the age eligibility as their likely won't be one. Gen X is likely to be the last to recieve such. Exactly why Kiwisaver has essentially taken over and replaced the old pension set up.
Most generations pay more then previous generations. I'm sure Gen X pays more than the Boomers, and so on.
Vote for a change? We just did. We had 6 years of the fastest and highest cost of living increases under the last lot, and the country got fed up with it and voted for a change. 75% of voters did not vote them back in again. However, if your talking about vote for a change by where neither blue or red with their tampering around the edges, then yeah totally agree, voting a party that's made from the people for the people thay could implement actual positive change would be a great start that I'm sure many youth could get behind.
We could manage inflation using Kiwisaver. Increase compulsory contributions when inflation needs targeting.
Start at a neutral position of 0%. So if someone's Kiwisaver is 4% then it's 4+0%. Inflation management at 1% then you're 4% + 1% etc.
If someone is "opted out" of Kiwisaver then they end up in credit with the IRD. When the rate becomes neutral again, they can start cashing out by way of tax refund.
So you're saying compulsory Kiwisaver for retirees, beneficiaries and the self-employed as well as employees?
Now that's a plan worthy of further discussion!
It'd operate like a tax in that it sucks money from the economy to reduce demand ... but it remains your money !!!
That could work! Certainly far better than enriching foreign lenders and the already rich.
(Yes. I know that's not quite quite what you were saying. But it is what I've been suggesting privately. Jfoe? Thoughts?)
@easymony - the time to have taken it easy was in December - they are panicking - RBNZ killed economy - .75 is what is needed however .5 and .5 and .5 is probably what it will be to take us through to March. Just my opinion (however I think i should be on the panel) hahahah
With regards to the two year recession we’re experiencing (per capita)…I’m pretty sure interest are literally the problem…they said they’d use interest rates to engineer a recession…then they did that…what do you think has created the current economic downturn? I’m keen to know…I could definitely be wrong 👍
The demand and supply of money is governed by two forces: Goverment spending and Taxes and Monetary policy. The two policies did not work effectively together hence we had cheap money inflation: To correct that Monetary policy and Physcal policy was both tightened very fast hence no one is spending money and not even the govt this created the downturn. To get stimulus into economy either govt needs to spend (they dont have money) or RBNZ needs to lose their policy which they are doing -
Please refer to many historical posts by JFoe around how our prosperity over the last 30 years are due to increasing private debt, much of which is tied up in residential housing. It is a core issue, but so many have vested interests they either deny, or divert from the issue.
Humans are by very nature, consumers. Anyone who tells you differently is selling something. Controlled consumerism is just another way to say dictatorship, by where the few tell the many what they can & can't do, buy, be & say. N Korea or China may suit one better if a dictatorship style governing sounds like paradise.
Its not that hard to put it together & figure it out. Interest rates lower, people have more disposable income to spend, that allows them to consume more products or services. This in turn stimulates the economy, keeps businesses going, keeps people employed. To not consume, is to be deceased.
Nevermind the permanent economic scaring from recessions
https://www.imf.org/en/Blogs/Articles/2018/03/21/the-economic-scars-of-…
Exactly why we got rid of Labour. The monetary lollyscrambles, the hand outs, all the excessive borrowing before scapegoating to every other entity but themselves when it all went peer shaped was giving everyone a sugar high with excess stupidity.
Suddenly tenants were thinking it was their landlords job to financially assist them into homes while they operated their rental out of charity, they believed anyone who owned a home was filthy stinking rich & only got there from further handouts from rich parents, they believed we could solve & totally eliminate natural disasters if we all just paid more taxes, they believed men could be woman & woman could be men, they believed we could solve economic issues facing the country by throwing socialism & Marxism at it, & they believed that it was everyone else's fault but their own.
It was high time a change not only in government, but in reality setting back in. Time to get heads out of the clouds, back to reality to do what's required not only as a country, but as individuals, to get back on track again.
As opposed to investors expecting tenants to bankroll their ever-growing property portfolios (often bought with equity from rising property values – self-serving, much?), all while cashing in on the Accommodation Supplement or Interest Deductibility schemes to keep their business afloat...
"Suddenly tenants were thinking it was their landlords job to financially assist them into homes while they operated their rental out of charity, they believed anyone who owned a home was filthy stinking rich & only got there from further handouts from rich parents, they believed we could solve & totally eliminate natural disasters if we all just paid more taxes, they believed men could be woman & woman could be men, they believed we could solve economic issues facing the country by throwing socialism & Marxism at it, & they believed that it was everyone else's fault but their own."
Absolutely. Tenants are clients of the rental business. Noone is forcing tenants to have to rent privately - there's always the government's emergancy social housing wait list to look forward to - up over 548% under Labours last 6 years governing, tenants now can look forward to waiting up to 5 years to be housed in the wait list along with the over 25,000 families waiting. What an amazing emergancy responce, shows exactly what top priority governments put tenants in.
Or tenants can do what every other home owner has had to & do, the hard work to achieve ownership. This could look different for different people as there's no one shoe fits method, but general methods such as taking on a temporary boarder & saving the difference, temporarily cutting back on expenditure, staying home longer to save, some general sacrafices will be required. One things for certain though, It is not the job or financial responsibility of private landlords to assist tenants into homes by offering heavily discounted rent, so that tenants can have an easier time saving for their own home. That's charity nonsense that one had been decieved to believe by Labour & the socialist crowd.
Landlords aren't charities, & nor is the private rental sector. Get busy building one's own empire, or help pay for someone else's. It's that simple. Landlords operate a business, they offer accomodation in exchange for a fee. This is a business transaction. I really don't understand how that's so hard to comprehend. This is basic business & economics 101. If a tenant doesn't like the service, or is fed up paying the fee, they can do what's required to sacrafice & eventually buy a house themselves, or they can rent off the government - who should live by their own charitable mantras. Tenants have options, but when lead by a government that's convinced them it's everyone else's responsibility to look after their own finances, which of course rids them of all responsibility as a cop out, one can easily see how plenty of tenants stay tenants for life. The success starts when the complaining & blaming stops. Take personal financial accountability.
As for the accomodation supplement - Remove the accomodation supplement and see the emergancy social housing waiting list rise even further than the 548% in 6years under labour? Without this supplement the tenants that require this in order to pay rent will have no other option. Removing the accomodation supplement condemns many tenants to homelessness. This is a tenant subsidy, not a landlord one.
Plenty of tenants do not require this supplememt to pay rent, the ones that do would only be able to turn to the gov to house them, with the private sector then be known to only rent to elite tenants, who can pay rent without any gov financial assistance. To take away the accomodation supplement is to create further homelessness, further tenants from home ownership, yet u advocate for this?
The removal of interest deductability added between $4,000 - $8,000 per year per property in additional costs. Guess who's paying the extra? I'll give you a hint, it's not the landlord. Remember, they operate a business, not a charity. If the costs or the risk to operate increases, this must be past onto the consumer to continue to profit. The only way housing will be deprofitized as the socialists desperately want, is government take care of the rental sector. Consider 80% of the rental market is private investors, & government can't even rent to 25,000 families let along nearly half the country, it's never going to happen. The better solution is every individual is responsible for their own finances, it doesn't fall on the responsibility of the landlord, or government, or employer, but ones self. Take accountability.
& no "it wasnt easy back in my day", I'm not a boomer, I'm in my early 30s.
"Noone is forcing tenants to have to rent privately."
Every post, GWGB, is laugh out loud moment. (Pub economics at it scandalous worst!)
What other choices do people who can't afford a house have? Sleep under a bridge? Raise their families in rust bucket vehicles? Steal?
@ Chris of no fame - Tenants who can't afford to rent within the private rental sector absolutely have options:
They are free to check out the government's emergancy social housing wait list to look forward to. This rent is largely subsidiezed by more government handouts, and once tenants have wait their 5 years to be housed by the governments prompt emergancy responce, tenants can enjoy a brand new state home built for them. If only owners got such a luxury of having the government pay their costs to live in a brand new home. Must be so hard.
What's laughable is that you Chris formally believed the lies Labour sold you, hook line and sinker - that private landlords operate a charity. The truth is hard to swallow, and clearly so is basic economics and business for some too.
It's not pub economics Chris, it's just plain & simple ol economics. Though socialists dont believe in such sensible things as business and economics, for them, feelings mayter over facts. In their little world everything is free, because they were told they were all special. No one is allowed to profit, or to have more than others. That's why their mantras are all about "equality" - as long as everyone is all equally poor. They conveniantly forget that equality of opportunity does not guarantee equality of outcome. Socialists chase the fabricated envy dream of equal outcomes. Such a fantasy does not exist. Get your head out of the clouds Chris, take off those rose tinted Labour love affair glasses of yours, time to get back to reality. Wake up - its the opporsite of woke.
Quick lesson for ya, you can go ahead and re educate your socialist mates with this as well, and I won't even charge you for the advice either:
One doesn't get cheaper rent by increasing both the cost and the risk to operate. One does not get cheaper property prices by taxing & penalizing those who already have one, in the hopes that it will help out those who don't. Basic business & economics doesnt work that way.
What you advocate for is nothing more than more envy taxes. This isn't Chris as in Hipkins is it? Starting to sound like him. Struggle to also define what a woman is, just as he as well? The basics always seem to trip socialists up. None of this is particularly hard to understand, which ever Chris you are.
hindsight is a wonderful thing.
I'm also picking a 0.5 btw.
3 things that i'm basing that guess off.
1. Inflation falling fast (last time i checked it was forecast around 2.5%)
2. economic growth is suffering.
3. the Fed cut by 0.5% and we need to match them to keep our exchange rate.
Yep…couldn’t agree more, & the slide in the economic downturn will most likely accelerate as the OCR is still insanely restrictive 🤦🏻♂️
It’ll turn to absolute sh*t over the next 6-12 months, the sentiment might be better but the lag effect will still restrict activity, maybe it will be shorter with many fixing to shorter terms but still noticeable…more job losses, more economic carnage (more drops in house prices I’m sure) & then…the printer will fire up, rates will get slashed, restrictions eased/removed & the 🚲 continues ☹️
Should’ve eased rates ages ago, should’ve got to the NIR quicker & that would have allowed them to use the tools like LVR/DTI wisely…they’ll panic slash to stimulate & f**k it because it’ll look so bad…hey, hopefully I’m full of 💩 & big A Orr lands it smoothly eh 🤞
What the world needs is a group of medieval monetarists getting together to discuss what another group of medieval monetarists should do. It's like some 19th century doctors having a chat about how other doctors should treat their patients...
'I think a few more pints of bloodletting is still required, friends. Maybe throw in a few leeches and some family prayers. That would be my sage advice to our esteemed colleagues.'
Well, lets dismiss Kiwi Banks Jarrod Kerr's opinion for starters.....he, conspicuously, has always had his own axe to grind.
And, if one has the discernment to look behind the fruit and vegetable "loss-leaders" and the few random "specials" in the supermarkets, then one plainly sees many horrendous price increases there.
And of course we have all been 'price-takers' in areas such as land rates, insurance premiums, tradesmens' charges, etc, etc. There is really no restraint on these 'service providers'.....there's nothing to stop them raising their charges at any time.
In fact, I would suggest that too hasty and large a reduction in the OCR could give further impetus to price rises; some businesses might think that because people would be spending less of their income on mortgage payments there would then be scope to raise prices as there would be more consumer spending power.
Also, it's premature to think that inflation has been well and truly tamed. The consequences of untamed inflation are to be seen at their worst in Germany's Weimar Republic from the early 1920s through the 1930s until WW2. In fact, it was a main contributor to WW2.
So, I would hope for a cautious OCR reduction of 25 points.....steady as she goes.
So what you're saying is that the 500,000 metric ton oil tanker that is the good ship NZ Inc. will spin on a dime and immediately steam off in the opposite direction at a high rate of knots with an OCR cut of 50 bpts while leaving the OCR still contractionary?
Good to know.
Please forgive me if I think Jarrod is more attuned to the current situation than you are. ;-)
Sentiment to turn into activity will still be a while away wouldn’t it? I would think even if we got three 0.5’s consecutively it would still be summer of ‘25 that you’d see genuine growth…lag time, some confidence in job security, scarred people refilling the household savings before going out spending…I hope for the economy’s sake you’re right 👍
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