Reserve Bank governor Graeme Wheeler. Photo / Mark Mitchell
Reserve Bank governor Graeme Wheeler. Photo / Mark Mitchell
The monetary policy shadow board's advice to Reserve Bank governor Graeme Wheeler is unchanged from six weeks ago - keep the official cash rate on hold at 3.5 per cent, with a cut the next best option.
The shadow board, set by the New Zealand Institute of Economic Research, isa panel of nine economists and business leaders who are asked to share out 100 points across possible interest rates to indicate what they think is the most appropriate OCR setting for the economy.
The results are exactly the same as before the January OCR review, with 62 per cent support for no change, 25 per cent support for a lower OCR and 12 per cent for a higher one.
"Three key factors are in play: Auckland's surging house prices, solid economic growth and the evaporation of inflation," said NZIER principal economist Kirdan Lees.
The latest housing data pointed to no let-up in the rising cost of Auckland property, even with the Reserve Bank looking to target investors in residential property by requiring banks to hold more capital against their assets, he said.
"Meanwhile, economic indicators such as retail spending and ANZ-Roy Morgan's consumer confidence survey point to an economy that is continuing to post robust growth. Labour participation is also particularly strong, providing much needed resources for sustained economic growth." And inflation expectations are at all-time lows by some measures, Lees said.
ANZ chief economist Cameron Bagrie favours (but does not expect) a cut to the OCR.
The Reserve Bank had an inflation target, not a growth or housing target, he said.
"The three are all connected but the bottom line is that core inflation is lower than when the bank started hiking 12 months ago."
Bank of New Zealand head of research Stephen Toplis, however, sees a stronger case for a higher OCR.
"The probability that the current cash rate is wrong is higher than the probability it is right. The problem is we don't know in which direction," he said.
"Nonetheless, ongoing strength in the domestic economy argues for greater upside risk than down."
