Inflation has risen back into the Reserve Bank’s target band, which combined with the New Zealand dollar sitting a two-and-a-half-month high means further cuts to the official cash rate (OCR) are unlikely.
According to BusinessDesk, the consumer’s price index rose 0.4% in the December quarter for an annual increase of 1.3% as the recovery in global oil prices pushed up local petrol costs and as the rampant housing market continues to drive rapid house price gains.
The Kiwi dollar climbed as high as 73.12 US cents, the highest since Nov. 9, and recently traded at 73.07 cents from 72.70 cents immediately before the release.
Economists polled by BusinessDesk had been picking a quarterly pace of 0.2% for an annual increase of 1.2%, while the Reserve Bank forecast was for consumer prices to rise 0.2% in the December quarter for an annual increase of 1.1%.
The official cash rate hit a record-low 1.75% in November, and Reserve Bank governor Graeme Wheeler projected the benchmark rate to stay unchanged through the bank’s forecast horizon until the end of 2019.
Stuart Ive, senior dealer foreign exchange at OMF in Wellington, told BusinessDesk the data shows inflationary pressures heading into 2017 could prompt the Reserve Bank to raise the OCR earlier than expected.
“It clearly does seem unthinkable now that we could be in an easing cycle,” says Ive. “That’s one of the things it’s going to be tough for the RBNZ to portray at its next meeting because that could cause the kiwi to spike up.”
The RBNZ forecast in November was for the OCR to remain unchanged for two years. However, it outlined several risks to that projection that could push rates either way.
