WELLINGTON: New Zealand posted the slowest inflation in more than 15 years in the first quarter, supporting some traders’ expectations that the central bank will cut interest rates later this year.
The consumers price index rose 0.1 percent from a year earlier, the smallest increase since the third quarter of 1999, Statistics New Zealand said in Wellington Monday. The median forecast of 16 economists surveyed by Bloomberg was for a 0.2 percent increase. Prices declined 0.3 percent from the fourth quarter.
Benign inflation adds to signs Reserve Bank of New Zealand Governor Graeme Wheeler can keep the official cash rate unchanged at 3.5 percent, while some traders bet he’ll cut borrowing costs before the end of the year. Last month, the RBNZ signaled it didn’t expect to raise rates until at least early 2017 as it faces an extended period of inflation below the bottom of its 1 percent-to-3 percent target range.
Today’s report “supports our view that the RBNZ will cut interest rates before the end of the year,” Paul Dales, chief Australia and New Zealand economist at Capital Economics, said in a research note. Softening economic growth “will prevent underlying inflation from rising as far as the RBNZ expects,” he said.
The New Zealand dollar fell after the report. It bought 76.83 U.S. cents at 11 a.m. in Wellington from 77 cents immediately before the release. There is about a 60 percent chance of a rate cut by December, according to swaps data compiled by Bloomberg.
