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UPDATE: NZ inflation falls below RBNZ's target

UPDATE: NZ inflation falls below RBNZ's target, opening delay to rate hikes

(Recasts with investor comment)

By Paul McBeth

Jan. 21 (BusinessDesk) - New Zealand's annual pace of inflation slowed to below the Reserve Bank's target band in the final three months of the year, giving governor Graeme Wheeler more room to keep the benchmark interest rate lower for longer.

The consumers price index fell 0.2 percent in the three months ended Dec. 31, from a quarterly increase of 0.3 percent in the September period, and below expectations for flat prices in the quarter, according to Statistics New Zealand. That slowed the annual pace of inflation to 0.8 percent from a pace of 1 percent in September, and below the Reserve Bank's target band of between 1 percent and 3 percent.

The New Zealand dollar fell to a two-week low 76.20 US cents from 76.61 cents immediately before the 10:45am release, and was recently trading at 76.43 cents. Traders are pricing in a reduction of 2 basis points to the 3.5 percent official cash rate over the coming 12 months, according to the Overnight Index Swap curve, indicating they see a chance of a cut by the central bank.

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