New Zealand house sales and core consumer spending declined, driving down the currency and providing scope for central bank Governor Alan Bollard to raise the benchmark interest rate only gradually this year.
House sales fell for a third month in June and it took longer to sell a property, according to Real Estate Institute figures published today. A separate report showed retail sales excluding vehicles and fuel declined for a second month in May.
New Zealand’s currency snapped seven days of gains on concern weak consumer spending will restrain economic growth. Bollard last month boosted the official cash rate a quarter-point to 2.75 percent, the first increase in three years, and said he expected to raise borrowing costs gradually this year.
“In respect of the household sector, things are still difficult,” said Craig Ebert, a senior market economist at Bank of New Zealand Ltd. in Wellington. “It’s one of a number of indicators that is starting to question the strength of the recovery and therefore the degree to which the Reserve Bank can remove stimulus.”
New Zealand’s dollar fell as low as 71.72 U.S. cents after the reports from 71.96 cents in late New York trading yesterday. It bought 71.92 cents at 12:35 p.m. in Wellington.
All 15 economists surveyed by Bloomberg News last week expect Bollard will raise the cash rate to 3 percent on July 29. Eleven expect a least a quarter-point increase at all four scheduled reviews this year. Four forecast at least one pause.
“There is a growing possibility that the pause in the bank’s tightening cycle comes earlier than our current forecast” of December, said Philip Borkin, an economist at Goldman Sachs JBWere Ltd. in Auckland.
Bollard on June 10 said New Zealand’s economic growth was accelerating, buoyed by exports and a recovery in the labor market. He said households were “cautious” and he expected that to continue.
Still, the governor said he decided to start raising borrowing costs from a record low due to emerging inflation pressures.
“Retail and housing numbers are not the be all and end all of monetary policy,” said BNZ’s Ebert. The central bank “needs to take a broad perspective about where the economy is going and what’s happening to price pressures. On the inflation front, there are still some issues there even with slow growth.”
Bollard, who is required to keep annual inflation between 1 percent and 3 percent, last month forecast underlying prices would accelerate over the next year. A report on July 16 will show consumer prices rose 1.9 percent in the 12 months ended June 30, according to the median forecast in a Bloomberg survey of 15 economists.
Core retail sales, which exclude vehicles dealers, fuel outlets and workshops, unexpectedly fell 0.2 percent from April, when they declined 0.1 percent, Statistics New Zealand said today. The median estimate of economists was for a 0.6 percent increase.
Total sales rose 0.4 percent, less than the 0.5 percent expected, after vehicle sales surged in the month.
Spending will likely recover later in the year, buoyed by cuts in income tax, said Ebert. Finance Minister Bill English on May 20 announced reductions for all workers, and an increase in the sales tax to 15 percent, both effective on Oct. 1.
Consumers are saying it is a better time to make a purchase as the economy and their personal finances improve, according to a UMR Research Ltd. poll of 1,100 people in June. Forty one percent said it was a good or excellent time to buy, up from 38 percent in April, UMR said in an e-mailed report.
“We see recovery, but it’s likely to take time,” Warehouse Group Ltd., the nation’s largest discount retailer, said in a presentation to investors last month.
House sales fell to a five-month low of 4,575 in June, the Auckland-based Real Estate Institute said in an e-mailed statement. Sales slumped 24 percent from a year earlier.
The median time to sell a home rose to 45 days from 43 days in May, the institute said.
“Buyers are still somewhat reluctant to commit,” said Mark Smith, an economist at ANZ National Bank Ltd. in Wellington. “We don’t anticipate much of a pick-up in building consents over the coming months, with residential investment unlikely to make a large positive contribution to growth over the middle of 2010.”