Interest rates tipped to hold as retail spending stalls

File photo / Doug Sherring

New Zealand retail spending unexpectedly stagnated in August and core sales fell, driving down the dollar and strengthening the case for the central bank to pause interest-rate increases for the rest of the year.

Retail sales were unchanged from July, when they fell a revised 0.5 per cent, seasonally adjusted, Statistics New Zealand said yesterday. The median estimate in a Bloomberg News survey of 11 economists was for a 0.3 per cent gain.

Core sales, which exclude fuel outlets, car dealers and workshops, declined for a second month, dropping 0.6 per cent.

The currency slid for the first time in three days, and another report showed housing sales slumped in September from a year earlier.

Reserve Bank Governor Alan Bollard kept the benchmark interest rate unchanged at 3 per cent last month, after boosting borrowing costs at the previous two meetings.

The data "painted a dismal picture of the Kiwi economy", said Helen Kevans, an economist at JPMorgan Chase in Sydney.

It comes even before the impact of the nation's worst earthquake in eight decades and is "further reason for the RBNZ to sit on the policy sidelines for the remainder of the year", she said.

The New Zealand dollar weakened after the report, dropping to US75.75c from US76.06c.

Kevans forecasts the official cash rate will be left unchanged until at least March. All 14 economists surveyed by Bloomberg News don't expect Bollard to move this year.

Retail sales stalled in August even as the Government raised GST on goods and services to 15 per cent from 12.5 per cent on October 1 and as stores engaged in discounting.

Consumer confidence was little changed in August from an 11-month low in July, according to an index calculated by ANZ National Bank. House sales fell 33 per cent in September from a year earlier, the sixth straight decline, according to figures from the Real Estate Institute yesterday.

Retail sales fell at 16 of 24 store categories surveyed in August, yesterday's report showed.

Spending at hardware stores dropped for the first time in four months, decreasing 5.8 per cent. Appliance outlet sales slid 2.2 per cent. Purchases from liquor outlets, department stores, bars and cafes also declined.

Purchases at supermarkets and grocery stores, which make up 32 per cent of core sales, fell 0.3 per cent, the first decline since February.

Vehicle dealer sales, the second-largest store category, increased 2.3 per cent, reversing July's decline.

- BLOOMBERG