New Zealand inflation expectations for the next two years have increased, a Reserve Bank survey shows, likely adding to the view that the central bank may lift its projected track for interest rates in Thursday's monetary policy statement.
Expectations for inflation one year out rose to 1.56 per cent compared to 1.29 per cent in the Reserve Bank's last survey three months ago. The two-year ahead figure rose to 1.92 per cent from 1.68 per cent.
The Reserve Bank releases its monetary policy statement on February 9 and is expected to hold the official cash rate steady at 1.75 per cent. Speculation has been growing, however, that recent signs of inflation may lead it to be slightly more hawkish. New Zealand's central bank is fairly unique globally in that it publicly forecasts where it expects interest rates to go over a three-year period. In November, it cut rates by 25 basis points to 1.75 per cent and forecast they would remain at that level until the end of 2019.
However, the consumers price index rose 0.4 per cent in the three months ended December 31 for an annual pace of 1.3 per cent, moving back into the central bank's 1 per cent to 3 per cent target range for the first time in two years. That, coupled with higher inflation expectations, may lead it to signal an eventual rate hike. Most economists are expecting a rate hike sometime in 2018.
The 90-day bank bill rate, seen as a proxy for the OCR, is expected to be 2.02 per cent at the end of March 2017 and increase to 2.22 per cent by the end of December 2017. The rate was 1.97 per cent when the survey was taken, the Reserve Bank said.
