New Zealand shares rose, reversing an earlier decline, after the Reserve Bank of Australia downgraded its forecasts for inflation, suggesting interest rates may head lower and prompting investors to seek out higher returns from equity investments.
The S&P/NZX 50 Index gained 21.630 points, or 0.315 percent, to 6,898.110. Within the index, 31 stocks rose, nine fell and 10 were unchanged. Turnover was $177 million.
The Reserve Bank of Australia this week cut its benchmark interest rate by 25 basis points to a record low 1.75 percent and in its quarterly monetary policy statement today the bank said it now expected underlying inflation to be at just 1 to 2 percent this year, below its medium term target of 2 to 3 percent, prompting speculation interest rates could fall further and sending investors in search of higher yielding assets such as equities.
"The Reserve Bank of Australia came out with some inflation projections that were a little lower than the market had expected for the period ahead and is starting to point to perhaps a further easing by the RBA," said Matthew Goodson, who helps manage more than $1.6 billion of equities in New Zealand and Australia at Salt Funds Management.
"People are finding it extremely hard to get a yield anywhere and it's forcing people into equities. Low inflation normally means less earnings growth, but investors are ignoring that and just trying to find a yield, any yield, and hence flocking into the equity market."