“[Neutral] is where the Reserve Bank’s neither got the foot on the accelerator or the brake.
“If you get this supply shock, you probably want to have that OCR around neutral, which is around 3%.”
Bagrie said the country could start to see seepage from higher fuel prices and transport costs into more generalised inflation.
“That’s the sort of story the Reserve Bank needs to stomp over,” he said.
“I favour a strategy of what’s called a stich in time saves nine. If I was the Reserve Bank, I’d be going a little bit earlier as opposed to going later.
“The risk is if they go later, you’ve got to go an awful lot more.”
Earlier this week, ANZ economists changed their interest rate outlook, forecasting we could now expect three consecutive OCR hikes – in July, September and October.
That would bring the OCR to 3%.
ANZ chief economist Sharon Zollner said the Reserve Bank (RBNZ) committee would not want to repeat the mistake of the Covid era, “when policy was kept too loose for too long”.
“Essentially, we see the RBNZ becoming too uncomfortable with an OCR in stimulatory territory as inflation inevitably rises,” she said.
“The risks of going too late outweigh the risks of hiking too soon, as long as the OCR is not considered contractionary.”
But Zollner said all forecasts should be taken with a “generous pinch of salt”.
Kiwibank economists hit back at the forecast, calling it “tone deaf” and “potentially reckless”.
“Both businesses and households are struggling with increased costs, not surging demand,” they said.
The Kiwibank economists warned raising interest rates too soon “risks a repeat of past mistakes, potentially inducing a recession”.
“This is not a demand story, this is not Covid.
“Households and businesses who’ve already seen their costs rise don’t need a rise in interest rates to dampen their demand.”
Instead, the Kiwibank economists argued the RBNZ’s best course of action is to “watch, wait and weigh up” the facts once they have the information in front of them.
They said New Zealand was likely to see a contraction in economic activity in the current quarter, though this won’t be played out in data for months to come.
“[The second-quarter Consumers Price Index] isn’t out until July, after the RBNZ’s decision, and to know if inflation sticks around, we really need to see Q3 [third-quarter] data at the very least.”