NZ's Q4 inflation seen slowing, may add to rate cut views

* NZ Q4 consumer price index seen unchanged q/q; rise 1.8 pct y/y

* Seasonal weakness in food prices, fuel costs seen as drivers

* Case building for a more dovish stance from RBNZ - analyst

WELLINGTON, Jan 18 (Reuters) - New Zealand's annual inflation is expected to have eased in the final quarter of 2018, adding to growing speculation the central bank may even cut interest rates later in the year if the economy loses more traction, a Reuters poll showed.

The median forecast of 10 economists was for the inflation rate to ease to 1.8 percent in the three months to end December, from 1.9 percent in the third quarter, still below the Reserve Bank of New Zealand's (RBNZ) target mid-point of 2 percent.

The consumer price index was expected to remain unchanged quarter on quarter, compared with a rise of 0.9 percent in the previous three-month period, the poll showed.

Inflation eased due to a seasonal drag in food prices and a drop in petrol costs, analysts said.

Analysts expect the RBNZ to look past temporary factors and keep to a commitment to hold the Official Cash Rate (OCR) at a record low at its next meeting on Feb. 13. In November, it had struck a neutral tone saying its next move would depend on how the economy fared and cautioned of downside risks from global trade frictions.

Craig Ebert, senior economist at Bank of New Zealand, said talk coming out of the Reserve Bank now suggests a more dovish tinge later in the year.

"Going into last year, there was probably a sense that the next move in rates was probably upwards. But now, it's a lot more open-ended as to what the bank will do," Ebert said, adding that he would still not rule out a rate hike.


Global risks are on the rise as U.S.-Sino trade tensions, a slowdown in China's economy and Brexit weigh on economies around the world.

Investors were taken by surprise when New Zealand's third quarter economic growth came in much weaker than expected last year.

"CPI in line with our expectations would add to the case we see building for a more dovish stance by the RBNZ in February," said ANZ senior economist Liz Kendall, who predicted that headline CPI would be unchanged in the December quarter and slip to 1.8 percent from a year earlier.

ANZ has predicted a rate cut in the final quarter of the 2019.

"The RBNZ needs to see accelerating GDP growth to achieve a sustained lift in inflation, and the prospect of that is slipping away," said Kendall.

A snap poll by Reuters in December showed the central bank would keep interest rates unchanged at least until the third quarter of 2019, contrary to market pricing that is suggesting a cut.

Kiwibank said in a note on Friday that price action before Christmas in the Overnight Index Swap market suggested a 25 percent chance of an OCR hike by November. But that has now flipped to indicate a 30 percent chance of a cut.

Domestic indicators have, however, firmed up in recent weeks, with manufacturing activity picking up in December. Business sentiment has also turned "less gloomy".

Statistics New Zealand will issue release the CPI figures at 1045 local time on Wednesday (2145 GMT on Tuesday). (Reporting by Praveen Menon in Wellington; Editing by Jacqueline Wong)

2019-01-18 07:12:03

© 2019 Thomson Reuters. All rights reserved. Reuters content is the intellectual property of Thomson Reuters or its third party content providers. Any copying, republication or redistribution of Reuters content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters. Thomson Reuters shall not be liable for any errors or delays in content, or for any actions taken in reliance thereon. "Reuters" and the Reuters Logo are trademarks of Thomson Reuters and its affiliated companies.