Reserve Bank head Adrian Orr is expected to hold the official cash rate at 5.5 percent next week. Photo: RNZ / Dom Thomas
Business and finance leaders are picking inflation to fall back into the Reserve Bank's (RBNZ) target band in the coming year, with expectations that the central bank may cut interest rates by the end of this year.
A quarterly survey of a handful of forecasters and company heads - commissioned by the RBNZ - showed expectations were for inflation to slow from 3.22 percent to 2.73 percent in the next 12 months, the lowest pick since September 2021.
Expectations for two years ahead, which are closely followed as an indicator of how effective official cash rate settings are, dipped to 2.33 percent from 2.5 percent.
Longer-term inflation expectations remained steady from the previous survey.
Despite its small number of respondents - just 37 - the RBNZ regards the survey as a credible steer on opinion, when looking at inflation and interest rates.
Cheering up the RBNZ
Westpac senior economist Satish Ranchhod said the RBNZ would get a fillip from the survey that showed its policy was working, but inflation was stubborn as demonstrated in other figures released on Monday.
"While today's fall in inflation expectations will help to quell concerns about the persistence of domestic inflation, we still think that inflation will fall more gradually than the RBNZ has assumed. Consistent with that, we're not forecasting rate cuts until early next year."
That was at odds with survey respondents who were picking two and possibly three cuts to the official cash rate (OCR) over the next 12 months, with the first likely occurring before the end of of he year.
The RBNZ reviews the OCR next week, with expectations it will be held at 5.5 percent in a commentary and forecasts similar to the past two statements issued this year.
The forecasts survey showed expectations of soft economic growth of no more than 2 percent over the next two years, unemployment staying below the 5 percent level many economists have been forecasting it will breach, lower wages, and a cutback in the strength of housing inflation.
