RBNZ Expected to Hold Rates Amid Softer Inflation

Commerzbank's Volkmar Baur doesn't expect the Reserve Bank of New Zealand (RBNZ) to raise interest rates for a second consecutive time in September. The central bank's decision is based on softer inflation data, particularly core inflation, which has been easing and supports a pause in rate hikes.

In July, full inflation figures stood at 3.5% year-over-year, down from 4.9% in June. However, excluding the sharp rise in gasoline and diesel prices, the core rate was only 2.2% in July, down from 2.8% in June.

On the other hand, positive figures for monthly aggregate credit and debit card sales give reason to be confident that the economy will not suffer too severe a setback. After core sales had slowed sharply in June and were up only 0.4% year-over-year, they rose again by 3.5% in July.

Commerzbank expects the central bank to leave interest rates unchanged in September, but maintain a hawkish tone given Middle East risks. This should provide some support for the New Zealand Dollar (NZD) in the coming weeks, although the weak economic environment is likely to continue weighing on the currency over the coming months.