Inflation expectations ease in Reserve Bank survey as chances of rate cut grow
By Paul McBeth
Feb. 12 (BusinessDesk) - 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
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.
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