ING expects the Reserve Bank of New Zealand (RBNZ) to raise interest rates Oct. 28 despite a projected inflation slowdown, making the September-quarter consumer price report central to its next policy decision.
ING FX strategist Francesco Pesole forecasts 3.8% annual inflation for the September quarter, down from the 4.1% Stats NZ reported for the 12 months through June. He expects a 25-basis-point rate increase unless the new reading falls substantially below expectations. Consumer prices rose 1.5% during the June quarter alone.
Stats NZ is scheduled to release the figures at 5:45 p.m. ET Wednesday, Oct. 21 (21:45 UTC), which is Thursday, Oct. 22, in New Zealand. The RBNZ projected 3.9% annual inflation for the September quarter. ANZ, like ING, forecasts 3.8%, while Westpac expects 3.7%.
The RBNZ raised its Official Cash Rate by 25 basis points to 2.75% on Sept. 2. Another increase of that size would bring the rate to 3%. The central bank’s medium-term annual inflation target is 1% to 3%.
The RBNZ attributed much of June’s inflation increase to fuel prices linked to the Middle East conflict. It said higher fuel and related costs were reducing households’ disposable income. Strong export prices, meanwhile, were supporting income and investment in sectors that sell abroad, the bank said.
ANZ says underlying inflation measures will help show whether fuel costs are spreading into other prices. Its economists also point to an oil-price rise and a weaker New Zealand dollar since the RBNZ made its September projections. In their view, those changes leave an October increase possible even if annual inflation is near 3.8%.
In earlier Kiwibank commentary on the October decision, senior dealer Hamish Wilkinson estimated about an 80% chance of a rate increase. His figure described market expectations, not a central bank decision.
The September-quarter CPI release is due Oct. 22, ahead of the RBNZ’s next scheduled policy decision on Oct. 28.
