OCR needs a deeper drop to get economy going

Jarrod Kerr, Kiwibank

Kiwibank says there is no doubt the economy needs support and there is no doubt the RBNZ should be aiming to stimulate. But does it see it that way? It should, Jarrod Kerr, Kiwibank chief economist says.

Recent data has strengthened the case for a more “go for growth” focused RBNZ. “The RBNZ will have removed the restrictiveness of monetary policy, but that is not enough,” he says.

Adding to the data that have solidified the need for more policy action has been the central bank’s own improved Tara-ā-Whare - Household Expectations Survey showing the 1,000 households surveyed think median inflation now running at 2.7% will be at 4% in a year’s time and 3% in two years’ time.

Households are known to believe inflation is always higher than it actually is. In this latest expectations quarterly survey started on the same day as Stats NZ’s CPI release on 21 July, the mean household expectation for one-year-ahead annual inflation increased from 5.6% to 6%.