NZ Retail Sales Get Rugby Cup Boost but Rates Seen on Hold
New Zealand retail sales volumes grew more than expected in the December quarter, helped by spending during the Rugby World Cup, but the upbeat data did not alter expectations that interest rates will stay low for now in an uncertain global economy.
Sales volumes, which strip out price movements, rose a seasonally adjusted 2.2 percent in the three months to Dec. 31, data showed on Wednesday, smashing market expectations of a 0.8 percent rise.
That followed a rise of 2.4 percent in the previous quarter, the biggest gain in nearly five years, which reflected spending related to the Rugby World Cup event in September and October.
The boost was seen as a one-off and not a game changer for the underlying economy, which has been patchy and hobbled by stubbornly high unemployment, denting confidence.
"The impact of one-offs was evident, reducing the implications for our monetary policy expectations," said Goldman Sachs economist Philip Borkin, who was expecting the central bank's tightening cycle to start later this year.
"The RBNZ will place more weight on spending trends evident over early 2012."
The New Zealand dollar edged up to a high of $0.8355 after the data, from $0.8326, and last traded at $0.8332. Interest rate futures were a touch softer, with benign rate expectations on track.
The strength of the retail data, which had volume gains over a wide range of goods from food to furniture, suggested a quarter of healthy growth for the overall economy.
"The solid print for core retail points to an on-trend GDP print being delivered," said ANZ senior economist Mark Smith, who expected 0.5 percent growth in the December quarter.
The Reserve Bank of New Zealand (RBNZ) has held its cash rate at 2.5 percent since April of last year. It has signaled that rates may stay there this year because of the European debt crisis, modest domestic demand and a delay in the rebuilding of earthquake-hit Christchurch.
Financial market pricing implies a minimal chance of a rate rise in the next 12 months, and a small chance of a rate cut at next month's central bank rate review.
The latest Reuters poll expects the RBNZ to begin tightening policy in the second half or even early next year.
The record low rates have not ignited the economy, but have been seen as helping to support the housing market and retail spending, albeit at soft levels.
Wage growth has been modest over the past year and the jobs market has remained weak, with the latest drop in the jobless rate to 6.3 percent in the December quarter caused mostly by a drop in the number of individuals looking for work.
The strength of sales in the second half of last year from various one-offs, such as the rugby event was not seen likely to continue.
"There's a risk of a flat (showing) or a decline as sales normalize so the stronger-than-expected second half of last year may be followed by a weaker-than-expected start to this year," said UBS senior economist Robin Clements.