{"id":502691,"date":"2026-06-30T12:35:30","date_gmt":"2026-06-30T12:35:30","guid":{"rendered":"https:\/\/www.newsbeep.com\/nz\/502691\/"},"modified":"2026-06-30T12:35:30","modified_gmt":"2026-06-30T12:35:30","slug":"kiwibank-says-the-official-cash-rate-should-stay-on-hold-heres-why","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/nz\/502691\/","title":{"rendered":"Kiwibank says the Official Cash Rate should stay on hold – here\u2019s why"},"content":{"rendered":"It forecasts inflation to peak at 4.2% in this current quarter, then fall to (a still elevated) 3.6% in the December quarter.<\/p>\n
Can the Reserve Bank really afford to ignore inflation that sits outside its 1-3% target band for that long?<\/p>\n
Yes, Kerr says.<\/p>\n
\u201cWe should look through it. If anything, demand has been hurt by this episode,\u201d he says.<\/p>\n
\u201cIt\u2019s not Covid.\u201d<\/p>\n
\u201cWe came out of Covid like caged animals. Demand spiked because interest rates were at the lowest level in human history. There was a hell of a lot of stimulus. I think people are still scarred from that. I think the Reserve Bank\u2019s a little bit scarred from that.\u201d<\/p>\n
The difference this time is that economic demand remains weak, he says.<\/p>\n
Kiwibank sees inflation falling as low as 1.9% by the middle of next year.<\/p>\n
That sounds good, until you see that it is a view based on ongoing economic pain.<\/p>\n
It picks unemployment to rise again through the second half of this year and to peak at 5.6% in June next year.<\/p>\n
Wage growth is likely to remain subdued.<\/p>\n
\u201cOur point is that the Kiwi economy was only recovering [prior to the Iran war]\u201d. <\/p>\n
\u201cIt wasn\u2019t at any point looking like demand was going to get out of hand. I think it\u2019s even more the case now.<\/p>\n
\u201cLifting interest rates is only going to hurt those who are already hurting.\u201d<\/p>\n
Of course, when it comes to forecasting, there is a difference between what an economist thinks should happen and what they think will happen.<\/p>\n
Kerr is adamant the OCR should stay on hold until after the election at least.<\/p>\n
But they\u2019ve told us they\u2019re going to do three hikes this year, he says.<\/p>\n
\u201cI\u2019m not in that camp, but I see a central bank that\u2019s kind of talked itself into that point.<\/p>\n
\u201cI think they will hike. They\u2019ve told us they\u2019re going to 3% this year,\u201d he says.<\/p>\n
\u201cI hope they water that down. One or two hikes this year would be more than enough.\u201d<\/p>\n
But despite market odds that still imply the OCR will be lifted from 2.25% to 2.5% next Wednesday, Kerr believes lower fuel prices in the past few weeks will provide the RBNZ with an opportunity to pause, at least until September.<\/p>\n
Kerr is hopeful. His experience of travelling around the country and talking to businesses has convinced him that more time with stimulatory settings is needed to bring confidence to an economy that has been battered by downturns and false recoveries for more than three years.<\/p>\n
He says he always asks businesses: Are you investing?<\/p>\n
\u201cAnd the answer\u2019s pretty much no.<\/p>\n
\u201cThere\u2019s always a handful of people that are looking through this and have the ability to do stuff, but most of the people that I speak to are sort of sitting on their hands when it comes to investment.\u201d<\/p>\n
That means they are also sitting on their hands with regard to hiring, he says.<\/p>\n
\u201cRight here, right now, the wage rate\u2019s running at 2%. We\u2019ve got a very soft labour market with a 13% underutilisation rate. So there\u2019s plenty of slack in the labour market.\u201d<\/p>\n
He notes that the labour market lags economic activity.<\/p>\n
\u201cSo what we\u2019re seeing today shows up in nine months\u2019 time,\u201d he says.<\/p>\n
By then, the supply shock inflation will have played through the economy.<\/p>\n
\u201cWe\u2019re not forecasting the unemployment rate to fall meaningfully this year at all,\u201d he says.<\/p>\n
\u201cIt\u2019s a 2027 story now. And that\u2019s frustrating, like we\u2019re just continually sort of pushing out this forecast recovery.<\/p>\n
\u201cCouldn\u2019t that be great if they left interest rates at a level that enables a bit more demand to come through?\u201d<\/p>\n
But might that raise the risk the RBNZ needs to hike more later on?<\/p>\n
\u201cThat doesn\u2019t bother me at all,\u201d he says.<\/p>\n
\u201cWhat bothers me is the risk\/reward in allowing the economy to limp along as it has over the last couple of years.<\/p>\n
\u201cI wouldn\u2019t mind a period of recovery.\u201d<\/p>\n
Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003.<\/p>\n
Stay ahead with the latest market moves, corporate updates, and economic insights by subscribing to our Business newsletter<\/a> \u2013 your essential weekly round-up of all the business news you need.<\/p>\n","protected":false},"excerpt":{"rendered":"It forecasts inflation to peak at 4.2% in this current quarter, then fall to (a still elevated) 3.6%…\n","protected":false},"author":2,"featured_media":502692,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[1558,138,6932,127,13488,305,26098,28162,95012,111,139,69,5908,90,250914,8998,3333,19257,312,3271,2069,250915,1361,223,165,1961,4276,102,379],"class_list":["post-502691","post","type-post","status-publish","format-standard","has-post-thumbnail","category-business","tag-been","tag-business","tag-cash","tag-despite","tag-economists","tag-have","tag-heres","tag-hold","tag-kiwibank","tag-new-zealand","tag-newzealand","tag-nz","tag-official","tag-on","tag-outliers","tag-position","tag-price","tag-rate","tag-says","tag-should","tag-stay","tag-steadfast","tag-that","tag-the","tag-their","tag-this","tag-why","tag-with","tag-year"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/502691","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/comments?post=502691"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/502691\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media\/502692"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media?parent=502691"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/categories?post=502691"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/tags?post=502691"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}