Reserve Bank of New Zealand Expected to Keep Rates on Hold at 1.75%
Wellington. The Reserve Bank of New Zealand is widely expected to keep interest rates on hold at 1.75 percent when it meets for the first time this year on Thursday (09/02), as inflation settles into the target band.
All 23 economists polled by Reuters expect no change to rates, which were lowered by 25 basis points to the current record low level in November, with many forecasting that rates will stay stable throughout 2017.
"The odds of additional easing have clearly reduced," ANZ Bank said in a research note, adding the RBNZ was likely to again strike a neutral tone in its accompanying statement.
New Zealand's economy surged ahead in the third quarter as consumers spent with abandon while homebuilding and tourism boomed. A 1.1 percent rise in gross domestic product surpassed economists' forecast of a gain of 0.9 percent and took the annual pace of expansion to 3.5 percent, putting it among the rich world's fastest-growing nations.
Inflation sped up smartly to 1.3 percent last quarter on an annual basis, moving back into the central bank's target range for the first time in two years.
The RBNZ's quarterly survey of inflation expectations released on Tuesday showed business managers forecast annual inflation to average 1.56 percent over the coming year, up from 1.29 percent in the November survey.
The New Zealand dollar rose to a 3-month high of $0.7352 after the fresh inflation data, from $0.7318.
Unemployment, meanwhile, rose to 5.2 percent in the fourth quarter while wage growth stayed sluggish as more people flooded the workforce.
RBNZ Governor Graeme Wheeler had cited inflation and global political uncertainty as key factors when the bank lowered rates in November, the day after Donald Trump was elected as United States president.
Kiwibank said that "international risks remain elevated creating a large amount of uncertainty."
"These hazards include how fiscal policy plays out in the US," Kiwibank said in a note. "The looming deadline for the UK to start the process of exiting the EU, as well as upcoming European elections, also present threats that could unhinge financial markets in 2017."
The RBNZ announced on Tuesday that Wheeler would not seek a second term as governor when his current five-year term ends on Sept. 26, just three days after a federal election. Deputy Governor Grant Spencer will fill in for six months while a permanent replacement is recruited.
Reuters
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