NZ's Q4 inflation seen slowing, may add to rate cut views
* NZ Q4 consumer price index seen unchanged q/q; rise 1.8
* Seasonal weakness in food prices, fuel costs seen as
* 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
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
Investors were taken by surprise when New Zealand's third
quarter economic growth came in much weaker than expected last
"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
"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
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)
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