Whatever the Reserve Bank does tomorrow regarding official interest rates, it will be wrong, according to senior BNZ economist Stephen Toplis.
Either the official cash rate (OCR) would be reduced from 2.25%, further stoking an overheated housing market, or, if no move was made, critics would accuse the Reserve Bank of a lack of commitment in getting the consumer price index (CPI) measure of inflation to the midpoint of the 1% to 3% target band. Inflation is now 0.4%.
"The Reserve Bank is on a hiding to nothing and, in this instance, we have more empathy with its plight than we might have had in the past.''
However, the bank, in many ways, had been the architect of its own fate, Mr Toplis said.
The BNZ had long warned cutting interest rates further would fuel the excesses being seen in housing and other asset prices. BNZ economists still believed the Reserve Bank's messaging had been off target.
While the central bank vehemently defended its communication strategy, market pricing and investor feedback showed the degree of uncertainty about the bank's actions had been climbing. In part, that was a reflection of heightened global confusion but, also, the Reserve Bank must accept some responsibility, he said.
If the market understood central bank thinking, surprises on the day of the rate set announcement should be few and far between.
Commentators had usually reached a strong consensus on the likely actions of the bank on the day and the market was usually close to fully pricing in the likely decision.
"The excitement for markets should not be focused on what the bank does on the day but around what it says about future directions that may, or may not, alter market perceptions about the road ahead.''
In a bid to substantiate its claims that market confusion had increased, BNZ economists looked at the degree of surprise faced by the market for each OCR decision since mid-2010 by looking at market expectations the day before the announcement and comparing them with the actual decision.
The results were enlightening, Mr Toplis said.
There were 47 OCR decisions included in the sample. In 40 of those cases the market was priced with 0.04% of the outcome - the market understood what the Reserve Bank was thinking and the central bank duly delivered.
In the case of the remaining seven, the market was relatively confused, the actual outcome varying between 0.09% and 0.19% away from the market expectations. The maximum the market could get it "wrong'' was 0.25%.
Two of the seven meetings when confusion reigned occurred during the Christchurch earthquakes, in one case there being surprise the Reserve bank cut rates 0.5% when a 0.25% cut was expected.
If the Christchurch earthquake periods were ignored, there had been only five occasions in the last 42 meetings when the OCR market had moved significantly as a consequence of the Reserve Bank's actions on the day.
Four of those had occurred in the last eight meetings and three of them in the last four.
The most notable point of confusion was in March when the market had, largely as a consequence of governor Graeme Wheeler's February speech, decided the central bank was on hold - and then it cut, Mr Toplis said.
"We are not trying to play the blame game here but to point out the data clearly support the fact uncertainty is elevated and uncertainty makes pricing the June 9 decision that much more difficult.''
The market was pricing in only a 20% chance of a cut in June but a significant majority of surveyed forecasters were predicting a cut.
The BNZ was in the no-cut camp, he said.
"We think the Reserve Bank will be ill-advised to deliver another market-shaking decision at this juncture. We think the best option for the Reserve Bank is to leave the cash rate where it is while maintaining its strong easing bias - indicating the likelihood of at least one more rate cut later this year.''
