November 13, 2012 / 11:31 PM / 5 years ago

UPDATE 1-Weak NZ Q3 retail data raises odds on rate cut

(Adds details, comment, market reaction, graphic link)

* Value and volume of retail sales fall in Q3

* More evidence of patchy economy, raises odds on rate cut

* Q3 retail sales down on supermarket, food, accommodation

By Mantik Kusjanto

WELLINGTON, Nov 14 (Reuters) - New Zealand retail sales volumes fell unexpectedly in the September quarter, another piece of data pointing to a mid-year weakening in the economy that has opened up the outside chance of a cut in interest rates.

Sales volumes, which strip out price movements, fell a seasonally adjusted 0.4 percent in the September quarter, well below market expectations for a 0.5 percent rise to follow the 1.3 percent increase in the June quarter.

The weak retail data follows figures last week showing an unexpected jump in the unemployment rate to a 13-1/2 year high in the September quarter.

Analysts said households were cautious with spending as modest wage rises and unemployment dent confidence, but for now their base case was the central bank would keep its cash rate at a record low of 2.5 percent, where it has been since April 2011.

“There’s a case for cutting rates, the question is whether or not the Reserve Bank can get over that line, given its worries about the Auckland housing market and worries about perhaps inflation coming out of Christchurch due to the rebuild,” said Deutsche Bank chief economist Darren Gibbs.

Overnight indexed swaps were showing the market had priced in a 28 percent chance of a rate cut by the Reserve Bank next month, more than double the odds they had priced in before the unemployment data last week.

The New Zealand dollar fell more than a quarter of a cent to $0.8155 before settling at $0.8160. Interest rate futures <0#NBB:> were up to 5 points higher.

The value of retail sales fell 0.8 percent in the third quarter. Sales grew 3.4 percent in Christchurch and 1.7 percent in main business centre Auckland, offsetting weak demand in other centres.

Sales volumes were dragged lower by falls in accommodation, recreational goods, supermarket and grocery stores, food, vehicle and fuel.

That offset stronger demand for hardware and building supplies in Christchurch, which was damaged by earthquakes in 2010 and 2011.

Analysts expect the economy to gather momentum next year, when the $16 billion rebuilding of Christchurch picks up, and that could put pressure on prices, which underpins their view that rates are most likely to stay on hold for now.

And in contrast to the weak activity data, house prices in key cities have risen, adding to inflation concerns.

“The odds of a cut are going up as a result of this, but I‘m still inclined to think the hurdle is so high that it’s going to be pretty difficult to get to that point, but the market’s going to go that way,” UBS senior economist Robin Clements said. (Editing by John Mair)

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