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NZ dollar to fall as interest rates rise, says RBNZ inflation survey

Tuesday 19th November 2013

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Firms expect the kiwi dollar to weaken by two cents to around 80 US cents by September next year, as the economic recovery gathers pace.

Expectations for economic growth in the year ending September 2014 now stand at 3 percent, compared with 2.8 percent in the June quarter survey, while the year to September 2015 is now expected to yield 2.9 percent growth, compared with 2.7 percent a quarter earlier.

The September quarter Reserve Bank Survey of Inflationary Expectations shows the 82 New Zealand-wide firms polled expect interest rates to rise by around 60 basis points at the short end over the course of the next year.

"The 90 day bill rate is expected to be 2.7 percent at the end of December 2013, which is slightly higher than the rate prevailing at the time the survey was taken," the bank said in a statement. "By September 2014, it is thought 90 day rates will have increased to 3.3 percent.

Ten year government bonds are expected to rise to around 5 percent by September next year, giving a 1.7 percent positive yield gap with 90 day rates.

Expectations for inflation are stable, with an annual rate of 1.94 percent is expected in the September year, rising slightly to 2.34 percent in a year's time.

The long-running survey clearly shows an expectation of tightening bias in monetary policy, with 40 percent saying current monetary conditions are easy, compared with 53 percent in the June quarter. Only 23 percent expect that to be the case in March next year, and expectations for September 2014 are for monetary conditions to be neutral.

On the jobs front, modest wage growth of 2.35 percent is expected next year, and p to 2.77 percent the year after.

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