Experts recommend OCR be held steady

Governor of the Reserve Bank of New Zealand Graeme Wheeler (Getty)
Governor of the Reserve Bank of New Zealand Graeme Wheeler (Getty)

A panel of economists and business people say the Reserve Bank should keep the Official Cash Rate (OCR) at 2.25 percent.

The New Zealand Institute of Economic Research (NZIER) has polled its 'shadow board' about what they think the Reserve Bank (RBNZ) should do tomorrow when it reviews the OCR.

The board believes the economy is improving enough for the RBNZ to keep the OCR at 2.25 percent.

But the RBNZ is in a difficult position. Inflation is well below where the bank would like it to be, and any cut to the OCR will fuel an already red hot property market.

"Although the shadow board recommends the Reserve Bank holds the OCR at 2.25 percent, it sees increased downside risk to the interest rate outlook," says NZIER Senior Economist Christina Leung.

"The pick-up in house price inflation is concerning, particularly from a financial stability perspective, but as long as the Reserve Bank's primary goal is on lifting inflation back to its 2 percent mid-point target it will see further scope to cut interest rates."

The BNZ's Stephen Toplis adds, "We are more worried about rising house prices than weak inflation hence our bias towards higher rather than lower interest rates as our preferred, though not forecast, option."

The strong dollar is another worry for the RBNZ, with the Kiwi is trading at 69.70 US cents.

The Kiwi slipped to 93.50 Australian cents, after the Reserve Bank of Australia held its Official Cash rate at 1.75 percent.