Westland Fed Shadow Board Opinion Out, Majority Backs 25bps Rate Cut This Week

At 10:00 on 14 August, the New Zealand Fed will hold a rate resolution. The latest news says that the New Zealand Fed's shadow committee is divided on whether to cut rates. Notably, the majority suggests that the New Zealand Fed cut rates by 25 basis points this week. The considerations behind this decision are closely related to the current situation and could have a significant impact on the direction of New Zealand's monetary policy.

The New Zealand Institute of Economic Research (NZIER) has a “shadow committee” composed of analysts. The Shadow Committee is independent of the New Zealand Federal Reserve and does not represent what the New Zealand Federal Reserve will do, but rather what they believe the New Zealand Federal Reserve should do. In other words, the Shadow Board does not preview what they think will happen, but what they think should happen.

The key points in the Shadow Board's report are as follows:

(1) The NZEI Shadow Committee is divided on whether the New Zealand Federal Reserve should lower interest rates in its August Monetary Policy Statement;

(2) More than half of the Shadow Board members believe that a 25 basis point cut in interest rates is needed now, given the continued slowdown in the New Zealand economy and labour market, and the fact that annual CPI inflation is close to the 1% to 3% inflation target range;

(3) Other members suggested that the New Zealand Federal Reserve keep interest rates at 5.50 percent;

(4) One member believes that economic data indicators still do not provide enough evidence to justify a rate cut now.

Taken together, the above news, if the New Zealand Fed decides to cut interest rates by 25 basis points this week, as expected by most of the Shadow Board members, threatens to depress the New Zealand dollar against the U.S. dollar.