Division Over OCR Cut and RBNZs Challenges

Highlights:

• NZIER Board Divided: The NZIER shadow board is split on whether the Reserve Bank of New Zealand (RBNZ) should cut the Official Cash Rate (OCR) by 25 basis points in tomorrow’s meeting, with opinions divided over economic conditions and data sufficiency.
• Criticism of RBNZ’s Policy Shifts: Squirrel Mortgages CEO David Cunningham criticizes the RBNZ’s recent policy changes as inconsistent, calling for a revision of the Monetary Policy Committee’s structure to include more independent members and reduce consensus-driven decision-making.
• Discrepancies in Guidance: HSBC Chief Economist Paul Bloxham highlights a significant gap between the RBNZ’s cash rate projections and market expectations, noting that despite alignment with key economic indicators, the RBNZ’s guidance diverges from market predictions.

NZIER Shadow Board Split on OCR Decision

The New Zealand Institute of Economic Research (NZIER) shadow board is divided on whether the Reserve Bank of New Zealand (RBNZ) should reduce the Official Cash Rate (OCR) in tomorrow’s meeting. Over half of the board members advocate for a 25 basis-point cut, citing economic slowdown and labor market weakness, with annual CPI inflation approaching the 1-3% target range. Conversely, others argue for maintaining the OCR at 5.50%, suggesting that current economic data does not yet support a rate cut. Despite the split, there is broad agreement that an easing cycle should commence soon, with opinions varying on whether this adjustment should happen immediately or after further data.

Concerns Over RBNZ’s “Flip-Flopping”

David Cunningham, CEO of Squirrel Mortgages, criticizes the RBNZ’s recent policy shifts, labeling them as counterproductive. He suggests that the RBNZ's tendency to quickly alter its stance on interest rates undermines its credibility. Cunningham believes that the RBNZ’s approach—seeking consensus within its Monetary Policy Committee (MPC)—has led to inconsistent messaging. He advocates for a revision of the MPC’s structure to include more independent members and promote a more diverse range of opinions, arguing that this could lead to more robust and consistent decision-making.

Global Comparisons and Future Directions

HSBC Chief Economist Paul Bloxham adds that the RBNZ’s forward guidance in May diverge significantly from market expectations, complicating its current position. He notes that while key economic indicators like CPI and unemployment align with RBNZ forecasts, there remains a notable discrepancy between the RBNZ’s cash rate projections and market expectations. This ongoing debate underscores the need for the RBNZ to refine its approach to monetary policy and align more closely with market conditions.

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