Reserve Bank of New Zealand
Reserve Bank of New Zealand Reuters/Robert Paterson

The Reserve Bank of New Zealand (RBNZ) survey of expectations conducted on 6-7 August showed expectations of CPI inflation, GDP growth as well as the NZD exchange rate declining, sending the Kiwi dollar back near its recent two-month low against the greenback.

The one-year series of the consumer price inflation forecast decreased to 1.96% from 2.08% on a mean basis while the median remained at 2.00%.

For the two-year expectations, both the mean as well as median forecasts have decreased from the previous quarter - from 2.36% to 2.23% in the mean and from 2.35% to 2.20% in median.

One-year expectations for GDP growth have fallen from 3.3% to 3.1%, and on the two-year horizon, the annual growth expectations have dropped from 2.9% – a level that was held over the previous three quarters – to 2.7%.

The NZD/USD exchange rate is expected to decline to 0.83 by the end of this year and to 0.80 in the next six months, the survey showed. The Kiwi dollar is predicted to weaken against its Australian counterpart too.

Following the survey results on 19 August, the New Zealand dollar dropped to 0.8425 versus the US dollar from near 0.8480 prior to the release.

The pair had touched 0.8407 on 12 August, its lowest since 4 June. A break below the June low of 0.8401 will take the pair to its lowest since 5 March.


The RBNZ survey also showed that the short-term inflation expectations remain subdued.

"Respondents were also asked what they believe quarterly CPI inflation will be for the current and next quarters. A quarterly percentage increase of 0.50% is expected for the September 2014 quarter (0.59% last survey), and 0.36% for the December 2014 quarter."

The central bank noted that the expected quarterly increases imply annual inflation rates of 1.2 and 1.5% for the years to September 2014 and December 2014 respectively.

GDP and Jobs

As per the survey, quarterly GDP growth is likely to be 0.8% for the June 2014 quarter and 0.7% for the September quarter.

According to the latest Statistics New Zealand data, real production-based GDP increased 3.8% annually between March 2013 and March 2014.

The one-year-ahead hourly earnings growth expectations fell from 2.9 to 2.6% in the survey. Likewise, the two-year series also fell by 0.3 percentage points to 2.8%.

The one-year expectation inched down 0.1 percentage point to 5.5% while the two-year- ahead rate remains at 5.3%. This compares with the June quarter print of 5.6%.

Interest Rates

The survey has forecast firmer monetary conditions and higher short-term interest rates.

"Monetary conditions are currently perceived as being easy; however, throughout the year firmer conditions are expected as the number of respondents expecting easy monetary conditions progressively reduces across the expectation horizon."

When the survey was completed, only 19% respondents believed that monetary conditions would be easier than neutral, down from 40% at the previous survey, the central bank noted.

By the end of June 2015, tighter than neutral monetary conditions are expected by a net 27% of respondents.

The 90-day bank bill rate is expected to be 3.7% at the end of September 2014, which is close to the rate prevailing when the survey was taken. Nine months later, the 90-day rate is expected to increase by about 45 basis points, to 4.2%, the survey shows.

Ten-year government security yields are expected to be around 4.8% at the end of June 2015, implying a positive yield gap of 0.6 percentage points with the 90-day rate.