New Zealand’s Inflation Data Signals Maintaining Rates

Inflation in New Zealand increased during the first quarter (Q1) of the year, increasing the signals that the Reserve Bank of New Zealand (RBNZ) could maintain interest rates for some time.

The consumer price index (CPI) rose by 1.5% during Q1 of 2021 on an annual basis, according to data by the Statistics New Zealand released on Wednesday, in line with market expectations.

The reading compares with a 1.4% rise in the last quarter of 2020.

On a quarterly basis, the CPI leveled up by 0.8%, also in line with analysts expectations, according to Bloomberg.

The central bank of New Zealand expects inflation rate to average 1-3% for the year, before declining in 2022.

However, the RBNZ expects a rise in consumer prices as the economy recovers from the negative impacts of the coronavirus pandemic, but this is unlikely to lead to reducing the stimulus measures until price stability and employment targets are achieved.

Inflation data by the RBNZ are due later on Wednesday.

It is worth noting that last week the central bank maintained its key interest rate unchanged at a record low of 0.25%.

In addition, the RBNZ kept a NZD 100 billion limit for government bond purchases.

Recovery from the pandemic remains uncertain, according to the central bank, which expects it would take considerable time and patience before the 2% inflation target and maximum sustainable employment are achieves.

Late last month, the RBNZ decided to ease restrictions on dividend distributions by the banking sector as the economy recovers from the pandemic.

Earlier in March, the bank also eased some temporary liquidity facilities which aimed at supporting the economy at the beginning of the pandemic.