Inflation expected to be 2.2% for March year, RBNZ survey shows

The Reserve Bank of New Zealand said its market Survey of Expectations for the March quarter showed the inflation rate was expected to fall to an annual rate of 2.2%, from 2.8% in the December quarter survey. The two year inflation rate is expected to fall to 2.3% from 2.7%. This is the first time in 5 years that expectations for the two year rate have exceeded the one year rate. The latest survey will reiterate sentiment that inflation is under control and within the Reserve Bank's 1-3% target band, potentially giving it room to cut the Official Cash Rate by 100 basis points to 2.5% on March 12. Economists are predicting the OCR will bottom at 2% in mid-2009. The survey showed business managers expected the New Zealand dollar would be at 52 USc by the end of both June and December 2009. The NZ dollar was expected to buy 80 Australian cents at the end of the year. GDP was expected to fall 0.1% in 2009, and increase 0.1% in 2010. The two-year forecast was well down on the previous survey, which had showed expectations of 1.5% growth. The 90 day bank bill rate was expected to be 4.2% by the end of the quarter and 4% by the end of the year, suggesting that further OCR reductions are anticipated, the survey said. The Reserve Bank's Survey of Expectations is a quarterly survey conducted by Nielsen. It samples opinions of business managers from different sectors and regions of New Zealand's economy. The March 2009 survey included responses from 64 businesses. In contrast with the Survey of Expectations, the RBNZ's Marketscope survey of 750 members of the public showed a net 20% of respondents thought inflation would be higher in a year's time, with a median expected inflation rate of 4% and a mean expected rate of 4.2%.