WELLINGTON (Reuters) - New Zealand's inflation expectations were sitting just above the central bank's target for inflation at the start of 2018, reinforcing the bank's view that interest rates would remain on hold for some time before rising in 2019.
The Reserve Bank of New Zealand's (RBNZ) quarterly survey of expectations, released on Wednesday, showed business managers forecast annual inflation to average 2.11 percent over the coming two years, up from 2.02 percent in the previous survey.
The New Zealand dollar <NZD=> climbed to $0.7304 from around $0.7272 before the release.
The results snapped two previous quarters of falls and should be a relief to the central bank as consumer prices have remained sluggish, forcing it to keep rates at a record low 1.75 percent where it has stood since late 2016.
Some in the market had called for a rate cut, but the bank had stressed that inflation expectations holding up around its target midpoint of 2 percent were central to its monetary policy outlook.
"We are very sensitive to inflation expectations, more so than in the past because businesses are more sensitive to current inflation," RBNZ assistant governor John McDermott told Reuters last week after the bank's monetary policy decision.
He noted that markets had been critical to the bank but said they had not picked up how important inflation expectations were for the bank's policy assessment.
One-year inflation expectations were a touch softer at 1.86 percent, down from 1.87 percent in fourth quarter.
(Reporting by Charlotte Greenfield and John MairEditing by Shri Navaratnam)
