August 13, 2024 2:00pm by David Farrar

I think it is premature to cut the OCR

The NZIER Shadow Board is divided over whether the Reserve Bank of New Zealand (RBNZ) should decrease the Official Cash Rate (OCR) in the upcoming August Monetary Policy Statement. Over half of the Shadow Board members viewed that a 25 basis-point decrease in the OCR is needed now, given the continued slowing in the New Zealand economy and the labour market, and annual CPI inflation is nearing the 1 to 3 percent inflation target band. The rest of the members recommended the Reserve Bank keep the OCR at 5.50 percent.

What concerns me is non-tradable or domestic inflation is still close to 6%. Overall inflation is down due to the tradable sector. I think the RBNZ should wait for a further quarter of inflation data before deciding to ease. Australia has just had their inflation rate sneak up, and we don’t want to have the same here.