The NZIER shadow board believes the Reserve Bank should raise
the official cash rate when it reviews it tomorrow.
The shadow board is a panel of nine economists and
businesspeople the New Zealand Institute of Economic Research
asks what level the bank should set its policy interest rate
The results are then combined to indicate the preference for
various possible levels.
In the latest survey there is 42 per cent support for an
increase in the OCR from 2.5 to 2.75 per cent tomorrow and 19
per cent support for an even higher rate.
Support for staying on hold this week has dropped to 39 per
cent from 55 per cent when the bank last reviewed the OCR six
NZIER economist Kirdan Lees said waiting until March to lift
rates would give governor Graeme Wheeler the chance to use a
full suite of communication tools - including a monetary
policy statement, press conference and select committee
testimony - to tell the public why interest rates need to go
"But the economy is building up steam. Business confidence is
soaring, consumers are ready to spend and the Canterbury
rebuild will pressure inflation higher over 2014 and beyond.
Loan-to-value restrictions also need help to slow the pace of
house price rises in Auckland," he said.
Most market economists think Wheeler will wait but the shadow
board is a survey of what he should do, not expectations of
what he will do.
Bank of New Zealand head of research Stephen Toplis said:
"There is no reason not to go now except for the fact that
the Reserve Bank has said it won't and for consistency
ANZ chief economist Cameron Bagrie has called a rate hike
this week while his counterpart at Westpac, Dominick
Stephens, said it was probably better to wait until March
when there is superior opportunity to communicate the
NZIER principal economist Shamubeel Eaqub favours an
immediate rate hike, saying "interest rates need to rise from
very accommodative levels to avoid another episode of an
overheated economy and overheated house prices".
The academic economists on the shadow board are divided.
Professor Viv Hall of Victoria University, a former member of
the Reserve Bank board, favours an on-hold decision this week
by a margin of 55 to 45 per cent.
But Professor Prasanna Gai of Auckland University sees rising
risks to monetary and financial stability in current rates of
capacity utilisation by firms together with a robust housing
market and high debt levels.
"A moderate increase in the OCR would seem prudent both to
complement [loan-to-value ratio restrictions] and to trim
aggregate demand, particularly given the relatively benign
Among the business representatives on the shadow board,
Business New Zealand chief executive Phil O'Reilly, who was
all for no change last time, now sees it as a 50/50 call.
Scott Gardiner of MYOB said interest rates should remain the
same through the March quarter to ensure businesses see
surging confidence translate into results, while Steel &
Tube chief executive Dave Taylor also favoured an on-hold
- Brian Fallow of the New Zealand Herald