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20 Apr 2015
Lower NZ inflation boosts chances of a rate cut – Capital Economics
FXStreet (Barcelona) - Paul Dales, Chief Australia & NZ Economist at Capital Economics, expects NZ inflation to remain below the RBNZ’s target, which might lead RBNZ to cut rates later this year to 3.0%.
Key Quotes
“The 0.3% q/q (unseasonally adjusted) fall in consumer prices in the first quarter was exactly in line with our forecast and in between the consensus forecast (-0.2%) and the RBNZ's projection (-0.4%). The 10.6% q/q fall in petrol prices was the main drag, but the real surprise (to everyone else at least) was the weakness of underlying prices.”
“Looking ahead, with petrol prices now rising, headline inflation will rebound in the second quarter. But we believe that a softening in GDP growth this year will prevent underlying inflation from rising as far as the RBNZ expects. It will instead stay close to the lower bound of the Bank's 1-3% target range. This explains why we believe that interest rates will fall from 3.5% now to 3.0% by the end of the year.”
Key Quotes
“The 0.3% q/q (unseasonally adjusted) fall in consumer prices in the first quarter was exactly in line with our forecast and in between the consensus forecast (-0.2%) and the RBNZ's projection (-0.4%). The 10.6% q/q fall in petrol prices was the main drag, but the real surprise (to everyone else at least) was the weakness of underlying prices.”
“Looking ahead, with petrol prices now rising, headline inflation will rebound in the second quarter. But we believe that a softening in GDP growth this year will prevent underlying inflation from rising as far as the RBNZ expects. It will instead stay close to the lower bound of the Bank's 1-3% target range. This explains why we believe that interest rates will fall from 3.5% now to 3.0% by the end of the year.”