Sharechat Logo

Inflation expectations ease in Reserve Bank survey as chances of rate cut grow

Tuesday 12th February 2019

Text too small?

Business managers and finance professionals trimmed their inflation expectations in the latest Reserve Bank survey, at a time when traders are pricing in a growing chance of lower interest rates. 

Respondents to the central bank's quarterly survey predict consumer price inflation of 1.82 percent a year from now, down from the 2.09 percent rate expected in the December survey. Two-year expectations were for inflation of 2.02 percent, down 1 basis point (0.01 percent) from the previous survey. 

A net 68.3 percent of firms believe current monetary conditions are easier than neutral, compared to a net 63.8 percent in December. "Easier than neutral" indicates rates which are low enough to stoke growth. Meanwhile, a net 75.6 percent of respondents predict easier conditions in a year's time, up from 52.2 percent three months ago. 

The Reserve Bank will release its first monetary policy statement of the year tomorrow afternoon. 

Governor Adrian Orr is expected to keep the official cash rate at a record low 1.75 percent, although traders will be closely watching his tone and language, given US and Australian central bankers have indicated policies of lower rates for longer. Traders are pricing in a 42 percent chance of a rate cut by June and a 100 percent chance over the next 12 months.

ASB Bank economist Mark Smith said the lower short-term interest rate track was in line with recent declines in fuel prices, and longer-term inflation expectations appear anchored around the central bank's 2 percent target. 

"We expect the RBNZ to remain focused on medium- to long-term inflation expectations, of which the outlook for GDP growth is a key ingredient," he said in a note.

The survey's respondents trimmed their outlook for economic growth, predicting GDP to respectively rise at an annual rate of 2.38 percent and 2.36 percent one and two years ahead. They had previously expected annual GDP growth of 2.44 percent on both horizons. 

The unemployment rate is seen at 4.17 percent in a year's time and 4.27 percent in two years. Statistics New Zealand figures last week showed the rate at 4.3 percent in December. It was released after the RBNZ survey was conducted Jan. 23-24. 

Respondents expected wages to rise 2.9 percent over the coming year and 2.86 percent in two years, down from 2.92 percent and 3.04 percent respectively in the December survey. 

Expectations of house price inflation also eased, with respondents predicting prices to rise 1.91 percent in the coming year, and 2.14 percent over the next two years. They'd previously predicted increases of 2.86 percent and 2.31 percent respectively. 

(BusinessDesk)



  General Finance Advertising    

Comments from our readers

No comments yet

Add your comment:
Your name:
Your email:
Not displayed to the public
Comment:
Comments to Sharechat go through an approval process. Comments which are defamatory, abusive or in some way deemed inappropriate will not be approved. It is allowable to use some form of non-de-plume for your name, however we recommend real email addresses are used. Comments from free email addresses such as Gmail, Yahoo, Hotmail, etc may not be approved.

Related News:

AFT Pharmaceuticals starts to hit its straps
Crown seeks US$100m from Tui operator; Prospector moving on
Pacific Edge goes back to shareholders for another $20m
Crown seeks $100m from Tui operator Tamarind
Ryman underlying annual profit may rise by up to 17%
NZ dollar eases on increasing US-China doubts, lack of news in Fed minutes
From dog tucker to top dog: economists ask how Northport can be Auckland’s best replacement
MARKET CLOSE: NZ shares rise; Metlife jumps on takeover talk
NZ dollar eases on technical factors, buoyed by higher dairy prices
RBNZ eyes Westpac Australia money laundering failures

IRG See IRG research reports