The NZIER Monetary Policy Shadow Board has recommended that the RBNZ raise its Official Cash Rate by 25bps from 2.75% to 3.00% at Wednesday’s monetary policy review, with a majority supporting another increase amid renewed inflation risks. The recommendation reflects concerns that higher global energy prices and NZD depreciation could push inflation expectations higher and generate second-round price pressures. Most members also favour further tightening over the coming year, with preferred OCR settings in 12 months generally ranging from 3% to 4%. However, the Shadow Board is divided over how quickly and how far rates should rise, given the weakness in domestic demand and the cumulative impact of previous increases.
The differences are particularly evident in participants’ assessments of the appropriate policy path. BNZ’s Stephen Toplis argued that higher oil prices, NZD weakness, stronger-than-expected growth and elevated core inflation required another increase, concluding: “Required response: raise the cash rate.” Kiwibank’s Jarrod Kerr also favoured moving to 3.00%, but wanted the RBNZ to signal an extended pause afterward. “Hike next week if you must. But tell us that’s it for a while,” he said, arguing that greater policy certainty would support business confidence. Meanwhile, Westpac’s Kelly Eckhold cautioned that the medium-term inflation outlook had not shifted sufficiently to justify rushing further tightening, stating that “there is no need to rush to those settings while the labour market remains cyclically weak.”
The disagreement highlights the challenge of responding to imported inflation without unnecessarily suppressing already-soft domestic demand. Some members favour continued tightening to prevent energy and exchange-rate pressures from becoming embedded, while others argue that existing restraint should be given more time to work. The Shadow Board’s recommendations were recorded on October 21, before the October 22 Q3 CPI release, and its views are independent of the RBNZ’s actual policy committee. With an October hike already heavily priced, the more important question for Wednesday is whether the RBNZ’s accompanying guidance reinforces expectations for additional tightening or suggests that a pause could follow.
Key Takeaways
- Majority backs an October rate hike: The NZIER Monetary Policy Shadow Board recommends raising the RBNZ’s Official Cash Rate by 25bps from 2.75% to 3.00%, citing renewed inflation risks from higher global energy prices and NZD depreciation.
- Further tightening favoured, but timing divides members: Most participants support a higher OCR over the coming year, with preferred settings generally ranging from 3% to 4%. However, views differ substantially on the appropriate pace and extent of additional increases.
- Hike now, pause afterward: Kiwibank’s Jarrod Kerr favours increasing the OCR to 3.00% immediately, followed by a prolonged pause to provide greater certainty for businesses and allow earlier tightening to take effect.
- Weak domestic demand argues for caution: Westpac’s Kelly Eckhold sees greater near-term inflation risks but little change in the medium-term outlook. He cautions against rushing additional increases while the labour market is cyclically weak.
- Imported inflation creates a policy dilemma: Members disagree over whether higher energy prices and a weaker NZD require further pre-emptive tightening or a more measured response to external cost pressures.
- RBNZ guidance may matter more than the hike: With an October increase already heavily priced, attention will focus on whether Wednesday’s policy statement supports further tightening or leaves room for a prolonged pause. The Shadow Board’s recommendations were recorded on October 21, before the Q3 CPI release, and are independent of the RBNZ’s actual policymaking committee.
