New Zealand inflation expectations fell back from a 31-year high, prompting investors to reduce bets on a jumbo interest rate hike from the central bank next week.
(Bloomberg) — New Zealand inflation expectations fell back from a 31-year high, prompting investors to reduce bets on a jumbo interest rate hike from the central bank next week.
Two-year ahead expectations eased to 3.3% in the first quarter from 3.62% in the fourth, which was the highest since 1991, the Reserve Bank said Tuesday in Wellington. It next reviews its Official Cash Rate, currently at 4.25%, on Feb. 22.
New Zealand’s dollar and swap rates fell after the report. There is now a 30% chance of the RBNZ raising the OCR by 75 basis points next week, down from a 50% likelihood earlier Tuesday, according to swaps prices.
“Inflation pressures are looking less alarming than they did back in November,” said Satish Ranchhod, senior economist at Westpac Banking Corp. in Auckland. “Consequently, it looks like the extent of OCR increases required to rein in inflation doesn’t need to be as large as the central bank previously anticipated.”
Most local bank economists are predicting the central bank will resort to a 50-point hike next week after a record 75-point move at its previous review in November. Sentiment has shifted after reports showed the labor market was slightly softer than expected in the fourth quarter while inflation of 7.2% was less than the RBNZ had predicted.
Today’s report showed one-year expectations edged up to 5.11% from 5.08% while 10-year expectations were little changed at 2.19%.
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