The New Zealand Institute of Economic Research’s shadow board suggests the Reserve Bank of New Zealand maintain the Official Cash Rate at 3.25% during the July policy review. The RBNZ meeting is scheduled for July 9. Analysts observe the sluggish economy, mixed inflation risks, and global uncertainties as reasons to halt rate cuts temporarily.

In the future, the board members generally predict the OCR will range between 2.75% and 3.25% over the next year. The mixed inflation outlook indicates the possibility that the rate-cutting cycle is approaching its conclusion. While the outlook suggests limited room for further easing, a few members think additional cuts might be necessary to bolster economic recovery.

The Shadow Board’s Independence

The Shadow Board operates independently from the RBNZ. It provides recommendations on actions the RBNZ should take rather than predictions of actual outcomes.

Given their latest recommendation, it’s clear the Shadow Board believes the current monetary settings are doing enough – for now – to keep inflation on course without pushing the brakes too hard on already sluggish activity. The suggestion to hold the Official Cash Rate at 3.25% isn’t coming from optimism, though; quite the opposite. Expectations for lower rates have dimmed under the weight of global fragility and a domestic economy that refuses to show clear momentum in either direction.

Inflation, as it stands, is no longer the beast it was, but it hasn’t retreated enough to give policymakers full confidence to ease further without hesitation. Recent consumer price data still embeds enough risk, especially with price pressures in services proving stubborn. From our standpoint, this suggests medium-term rate expectations shouldn’t lean too heavily on the idea of quick or aggressive cuts ahead. The lower bound of the board’s one-year horizon, at 2.75%, reflects only cautious space for movement – not an invitation for looser settings.

That said, we can’t ignore that a few on the board raised the case for more monetary easing, stemming from the idea that weaker domestic demand might act as a drag well into 2025 without intervention. These voices, however, still appear outnumbered by those prioritising stability above all else.

Strategic Implications For Monetary Policy

From a strategy perspective, there’s now less incentive to price in early cuts or rapid downward steps in the OCR. At this stage, the data flow matters a good deal more. Labour market softness, real wage pressure, and spending patterns will need monitoring with increased attention. If one or more of these show fresh weakness without offsetting strength elsewhere, positioning may need to adjust quickly.

The broad takeaway here is that the central bank’s current stance is rooted in caution. That doesn’t mean outcomes are fixed, but forward steps will likely be earned through data rather than assumed from sentiment. What stands out is how the board is allowing for flexibility – constrained, yes, but not ruled out.

As we interpret the findings, we think implied volatility may build again as future RBNZ meetings draw nearer, particularly if offshore stresses – in either bond yields or commodity-linked currencies – shift assumptions. Liquidity remains adequate for now, but if market pricing drifts away from these messages, short-term rate hedging or tactical curve positioning may warrant reconsideration across the board.

The board’s distribution of views gives us a clear framework to model risk scenarios. Holding firm at 3.25% is now the base case. Movements outside this range will likely need justification from either a material change in inflation data or more widely shared economic concern. In our view, the key over the next two quarters will be paying close attention to which of those things carries the upper hand.

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