(Bloomberg) -- New Zealand’s central bank will only pivot to an easing stance when it is sure it has domestic inflation under control, which will take until next year, ANZ Bank says.

While headline inflation will drop to 2.6% in the third quarter this year, returning to the Reserve Bank’s 1-3% target band for the first time since early 2021, that won’t be enough to trigger rate cuts, ANZ New Zealand economists said in a note Friday. That’s because non-tradables inflation — a closely watched indicator of domestic price pressures — will still be 4.5% in that quarter, they said.

“For the RBNZ to be confident that inflation has been beaten, it will need to see concrete evidence that sticky domestic inflation risks have been contained,” ANZ said. “It’s not just about getting below 3%, it’s about staying there.” 

Delaying a rate cut into next year could put New Zealand at odds with peers such as the US and EU, where policymakers have signaled reductions are likely this year. Investors and most economists continue to pick the RBNZ will also act this year, not least because the economy has been in recession and faces little or no growth in 2024.

A report this week showed headline inflation eased to 4% in the first quarter but non-tradables inflation barely slowed to 5.8%, above the RBNZ’s own pick of 5.3%. That was the fourth upside surprise on domestic inflation for the central bank since it went on hold in May last year, ANZ said.

ANZ forecasts that the RBNZ will keep the Official Cash Rate at 5.5% until May next year. It expects headline inflation will be 2.1% in the first quarter of 2025, while non-tradables will be 3.7%.

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