New Zealand inflation expectations fall further, kiwi dips

NEW Zealand inflation expectations fell to their lowest level in almost three years, supporting investor bets that the central bank will be able to start cutting interest rates later this year. The kiwi dollar dipped.

Two-year ahead expectations declined to 2.33 per cent in the second quarter from 2.5 per cent in the first, according to a survey of businesses published by the Reserve Bank of New Zealand (RBNZ) on Monday (May 13) in Wellington. That’s the lowest since the third quarter of 2021. The one-year measure fell to 2.73 per cent from 3.22 per cent, the five-year measure was unchanged at 2.25 per cent, while the 10-year gauge rose to 2.19 per cent from 2.16 per cent.

The RBNZ, which aims for an inflation rate of 2 per cent within a 1 to 3 per cent target band, has indicated it does not plan to start reducing its Official Cash Rate from 5.5 per cent until next year amid stubbornly persistent domestic price pressures. At the same time, the economy has stalled and unemployment is rising, suggesting waning demand will curb price gains.

The New Zealand dollar fell to 60.04 US cents at 3.09 pm in Wellington from 60.16 US cents beforehand. Investors have almost fully priced two rate cuts in the fourth quarter of this year, swaps data show.

RBNZ policymakers next decide on rates on May 22. BLOOMBERG