New Zealand Central Bank not Expected to Cut Rates Next Week

Inflation for the first quarter of the year was bang on Reserve Bank expectations and won’t add weight for another rate cut next week, say economists.

At 0.2 per cent for the quarter and 0.4 per cent for the year to the end of March it was slightly higher than the expectations of many economists but remained historically low. New Zealand’s rolling annual inflation rate has been below 1 per cent for seven consecutive quarters.

The Reserve Bank is mandated to set its monetary policy to keep inflation between 1 and 3 per cent with the focus on a mid-point of 2 per cent. That has most economists expecting there will be one or possibly two more cuts to the official cash rate this year as the bank seeks to stimulate the economy and drive inflation.

But as Westpac’s Michael Gordon wrote, the latest data added “no fuel to the fire” for a cut next week.

In fact market pricing for a cut next week has receded to around a 30 per cent chance which was more in line with Westpac’s expectations, he said.

The big falls in the March quarter data were oil related – a 7.7 per cent fall in petrol prices and a 12 per cent fall in international airfares.

via New Zealand Herald

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