Inflation worries

Posted by Scriptaty | 5:22 AM

The latest inflation data out of New Zealand sparked concerns among market watchers. Consumer prices surged a higher-than-expected 1.5 percent for the second quarter, which put the annualized rate at 4 percent. This data lends credence to the idea the Reserve Bank of New Zealand (RBNZ) will have to keep monetary policy steady, despite the slowing growth prospects, analysts say.

“The second-quarter data confirmed there is absolutely no scope for a near term rate cut,” says Levine.

He expects the central bank to remain on hold until the first quarter of 2007, when he expects a drop in the inflation rate, back within the RBNZ’s target 1-3 percent band.

Callow agrees monetary policy was likely on hold throughout 2006. “We expect they won’t cut rates until first quarter 2007, though of course the market will price it in, which should hurt NZD/USD,” he says.

The RBNZ most recently met on July 27 and left monetary policy unchanged. The next meeting will be Sept. 14.

Looking into 2007, Credit Suisse forecasts 1.25 points of interest-rate easing through 2007, with potential for a 2007 year-end cash rate at 6.00 percent.