No Kiwi Rate Cut This Year, Citigroup Says

Array
(
    [0] => Array
        (
        )

    [1] => Array
        (
        )

)

The market may be pricing in a cut to official interest rates in New Zealand in coming months, but it is incorrect to be doing so according to SB Citigroup.

The broker suggests the data flow in recent weeks, which showed strong increases in both retail sales and building consents and solid migration numbers, supports no change to official rates when the Reserve Bank of New Zealand (RBNZ) reviews policy this week.

The broker goes further, suggesting not only will the RBNZ indicate no easing is likely this year, but it will accompany this with a more hawkish bias, particularly as higher energy prices will see further upward pressure on inflation, which is already above 3%.

This should have the effect of reversing the market, the broker forecasting an end to the recent narrowing of the spread between 10-year bonds in New Zealand and those in Australia and the US, with the differential to widen again in coming months.

The broker also sees a stronger Kiwi dollar going forward and has revised up its forecasts for the next six months, with its one-month estimate increasing to $0.64 from $0.615 against the US dollar.

Click to view our Glossary of Financial Terms