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Business and financial leaders expect inflation to be tightly controlled and the official cash rate likely to fall sharply next year.

The Reserve Bank’s (RBNZ) quarterly expectations survey shows two-year inflation expectations are at 2.12 per cent, up 9 basis points from the last quarter, but within the RBNZ’s 1 to 3 per cent target.

The survey received responses from 40 business leaders and professional forecasters.

The official cash rate is expected to fall 50 basis points to 4.25 percent by the end of December, and to 3.33 percent a year later.

The RBNZ said expectations for the unemployment rate remained stable, rising just one basis point to 5.22 per cent year-on-year from 5.11 per cent last quarter.

While expectations for wage increase decreased slightly on an annual basis to 2.81 percent, the two-year average expectation for annual wage inflation increased by 30 basis points to 3.16 percent.

The survey also revealed belief that the economy will recover; Economic growth is expected to be 2.17 percent in two years, a slight increase compared to previous expectations.

On the housing front, expectations are growing that the market will recover next year; House price inflation expectations increased by 71 basis points to just over 3 percent.

However, the two-year house price inflation expectation decreased by approximately a quarter point to 4.17 percent.

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