Survey makes life tougher for RBNZ

The odds of a more hawkish tone in the Reserve Bank of New Zealand's (RBNZ) December monetary policy statement "just got higher", Westpac economists said yesterday.

They were commenting on a quarterly survey of expectations carried out for the RBNZ which showed business managers forecast inflation to average 2.1 per cent over the coming year, from 1.8 per cent in the August survey.

Two-year-ahead inflation expectations rose to 2.61 per cent from 2.25 per cent in the previous quarter.

The central bank forecasts inflation expectations around 2.2 per cent and falling.

"The RBNZ's oft-repeated expectation that 'inflation is expected to track comfortably within the target range [1 per cent to 3 per cent] over the medium term' now looks dubious," Westpac said.

RBNZ staff and advisers are meeting this week before the December 10 official cash rate review and monetary policy statement.

The RBNZ may be forced to raise the official cash rate sooner than the second-half of 2010. Westpac is picking March 2010.

The survey also showed economic growth is expected to pick up, with gross domestic product rising 1.7 per cent in the coming year from 0.8 per cent in the previous survey. Over two years, growth is seen at 2.3 per cent from 2 per cent previously.

New Zealand emerged from recession in the June quarter.

- NZPA