• NZ inflation expectations fall further

    Expectations of a rate cut pick up pace

New Zealand inflation expectations fell to their lowest level in almost three years, supporting investor bets that the central bank will be able to start cutting interest rates later this year. The kiwi dollar dipped.


Two-year ahead expectations declined to 2.33% in the second quarter from 2.5% in the first, according to a survey of businesses published by the Reserve Bank Monday in Wellington. That’s the lowest since the third quarter of 2021. The one-year measure fell to 2.73% from 3.22%, the five-year measure was unchanged at 2.25%, while the 10-year gauge rose to 2.19% from 2.16%.


The RBNZ, which aims for an inflation rate of 2% within a 1-3% target band, has indicated it doesn’t plan to start reducing its Official Cash Rate from 5.5% until next year amid stubbornly persistent domestic price pressures. At the same time, the economy has stalled and unemployment is rising, suggesting waning demand will curb price gains.


Today’s report “will be welcome news for the RBNZ, and will help to reinforce expectations that inflation will continue to drop back over the course of this year,” said Satish Ranchhod, senior economist at Westpac in Auckland. Still, with domestic prices proving stickier than anticipated, “we’re not forecasting rate cuts until early next year.”


The New Zealand dollar fell to 60.08 US cents at 4:47 p.m. in Wellington from 60.16 cents beforehand. Investors expect at least one rate cut in the fourth quarter of this year, swaps data show.


RBNZ policymakers next decide on rates on May 22.


Insurance Business NZ