Shadow board backs OCR rise

Cameron Bagrie.

NZIER's shadow board is emphatically in favour of an increase in the official cash rate tomorrow.

The Institute of Economic Research asks a panel of nine economists and businesspeople to allocate 100 points across possible interest rates, to indicate in a probabilistic way what they think is the appropriate level for the OCR. The results are then combined to give a collective view of what the Reserve Bank should do - not what it will do.

The consensus shifted in favour of a hike at the last review in January.

This time there is a 69 per cent preference for a rise in the OCR from 2.5 per cent to 2.75 per cent tomorrow and 18 per cent support for a 50-point increase.

"The economy is moving along nicely. The Canterbury rebuild is proceeding apace and elsewhere all the economic indicators point to a growing economy that will push prices higher," said NZIER economist and architect of the shadow board Kirdan Lees.

"Interest rate hikes are required to head off inflation pressures and moderate demand for Auckland housing."

Interest rate rises would pack a punch, he said.

"Most outstanding mortgage lending is short-term so hikes will be passed straight through to borrowers."

Only one board member, New Zealand Steel & Tube chief executive Dave Taylor, is ambivalent about the wisdom of a rate hike, seeing it as a 50:50 call.

For ANZ chief economist Cameron Bagrie it is a 50:50 call whether the Reserve Bank should hike by 25 or 50 basis points tomorrow.

Bank of New Zealand head of research Stephen Toplis said there was no doubt the bank needed to raise the cash rate.