“The Shadow Board is divided over whether the Reserve Bank should increase the Official Cash Rate (OCR) in the May Monetary Policy Statement,” said the New Zealand Institute of Economic Research (NZIER) in its latest report. The update becomes important for the NZD/USD traders ahead of this week’s Reserve Bank of New Zealand (RBNZ) monetary policy meeting announcements.
Key quotes
A larger number of Shadow Board members viewed an OCR increase of 25 basis points to 5.50 percent is warranted, given domestic inflation pressures remain high and the upside risk to inflation due to the weather events earlier this year.
The rest of the Shadow Board members recommend the Reserve Bank should keep the OCR at 5.25 percent.
There was a divergence in views amongst the Shadow Board on where the OCR should be in twelve months.
They reflect the different concerns held by the Shadow Board members about the economic outlook for the coming year.
Recent developments, such as weaker Government tax revenue and consumer spending, and continued declines in business profitability, point to a slowing in the New Zealand economy.
Two members also pointed out the potential upside risk to inflation from rising net migration inflows and any new fiscal stimulus in the new Budget, which the Reserve Bank should keep their eyes on.
NZD/USD rises
Despite the mixed conclusion from NZIER, NZD/USD picks up bids to refresh intraday high near 0.6275 amid hawkish RBNZ expectations, as well as the US Dollar pullback amid fears of no US debt ceiling deal.