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Further New Zealand interest rate cut forecast as business confidence wilts

Xinhua, October 6, 2015 Adjust font size:

New Zealand business confidence in the last quarter was at its lowest since March 2011, according to a survey by an independent economic think-tank out Tuesday.

A net 9 percent of businesses expected deterioration in the New Zealand economy over the coming months, according to the poll by the New Zealand Institute of Economic Research (NZIER).

This was in contrast to a net 12 percent of businesses reporting an improvement in their own trading activity over the past quarter, NZIER senior economist Christina Leung said in a statement.

"Even more positive was the rebound in businesses' expected trading activity over the next quarter, with a net 17 percent of businesses expecting an improvement," said Leung.

"The recent dominance of negative news about the New Zealand economy has left many businesses feeling uneasy about general business conditions, but few have seen a direct effect on demand in their own business."

While businesses were still looking to hire and invest in plant and machinery, they were finding it ever more difficult to maintain current price levels, and a net 6 percent of businesses reported cutting prices over the past quarter, a level not seen since June 1999.

"Weak pricing power has had a negative effect on profitability, but businesses are fairly optimistic about an improvement in profitability over the coming months. This is partly based on the expectation that they will be able to pass on some of the cost increases," said Leung.

The weak inflation environment suggested the Reserve Bank of New Zealand (RBNZ) would cut interest rates for a fourth time this year.

An Economic Note from the ASB Bank agreed that the survey indicated the RBNZ might cut the official cash rate (OCR) down from 3.5 percent to 2.75 percent so far this year again before the year was out.

"The fall in confidence may not be enough to concern the RBNZ, given it has already cut the cash rate 75 basis points since June, which should help provide some support going forward. However, the weak inflation measures are cause for concern," said the Economic Note.

"We expect one more OCR cut from the RBNZ; while we slightly favor October over waiting until December, it will remain a close call." Endi