Split NZIER Shadow Board leans towards RBNZ rate hike this week

The NZIER Shadow Board's findings suggest a rate hike is the probable move on Wednesday, though the division among members — some favour keeping rates unchanged at 2.50 percent — reduces the certainty markets can attach to that outcome. Raising the OCR by a quarter of a percentage point to 2.75 percent would continue the tightening cycle the RBNZ restarted in July and match the median forecast already held by most bank economists ahead of the decision. Because most forecasters already anticipate this move, the key market-moving details will be the projected OCR path and any indication on October's meeting, where both the Shadow Board and external economists expect a data-dependent approach rather than a pre-commitment. If the RBNZ hikes while offering cautious guidance, the New Zealand dollar's reaction is likely to be only mildly hawkish. In contrast, a hold or a hike accompanied by a surprisingly strong tightening signal would trigger a bigger repricing, given how closely the outcome aligns with consensus.

Earlier:

• Preview: Inflation and growth strength point to further RBNZ tightening, BNZ says
• 90% of economists expect RBNZ hike on September 2, poll shows

The divided but hike-oriented Shadow Board outcome paves the way for what most economists already see as a near-certain 25bp increase on Wednesday.

Summary:

• More than half of NZIER's Monetary Policy Shadow Board members advise raising the OCR by 25 basis points to 2.75% at the September 2 Monetary Policy Statement.
• The remainder prefer maintaining the OCR at 2.50%, pointing to weak domestic activity and a decline in inflation expectations in the RBNZ's latest Survey of Expectations.
• Proponents of a rate rise highlight persistently high inflation and the ongoing need to move the OCR closer to neutral.
• One year out, Shadow Board members largely concur that the OCR should continue to increase, with opinions clustering around 3 to 3.25%.
• A number of members emphasized a desire for gradual tightening that weighs inflation control against backing a still-weak economy.
• The Shadow Board functions independently from the RBNZ, and its next report is set for October 27, prior to the RBNZ's next Monetary Policy Review.

The Reserve Bank of New Zealand is expected to deliver another OCR increase this week. NZIER's Shadow Board indicated that slightly more than half of its members recommend a 25bp hike to 2.75% at the September 2 Monetary Policy Statement. However, the board's divided opinion, made public on Monday, still includes a significant minority that supports keeping the OCR at 2.50%.

Supporters of another rate rise contend that the OCR is still far below neutral, while core inflation is at the upper end of the RBNZ's target range, reducing the case for ongoing stimulus. Other members presented a more cautious view, observing that domestic economic activity is still weak and that the RBNZ's Survey of Expectations showed a recent decline in inflation projections. They argued this supports keeping rates unchanged for now instead of hindering a fragile recovery.

The RBNZ had already restarted its tightening cycle, raising the OCR to 2.50% in July as it aims to get inflation — which hit 3.9% in the June quarter — back to the 1-3% target band. That July move occurred despite declining global oil prices and a temporary reduction in Middle East tensions, which lowered the short-term inflation outlook compared to the RBNZ's prior forecasts.

Over a longer horizon, Shadow Board members largely agree that the OCR should continue rising in the next twelve months, with individual estimates concentrated in the 3-3.25% range. This aligns with external bank projections that anticipate the RBNZ indicating a comparable tightening trajectory while staying intentionally vague about the speed of future rate changes, including whether the October Monetary Policy Review will bring another hike.

The NZIER Shadow Board functions independently of the RBNZ. Each member assigns a probability weight to possible policy decisions, and these are averaged to produce a single panel outlook. The next publication is due on October 27, before the following RBNZ Monetary Policy Review.