FXStreet (Mumbai) - Weaker currency could not boost inflation in New Zealand in the December quarter. On account of increase in spare capacity as well as falling commodity prices, inflation is expected to fall 0.4 per cent over the December quarter. Westpac observed that this drop in CPI would bring down inflation for 2015 to 0.2 per cent which is lower than the central bank’s (RBNZ) forecast of 0.4 per cent annual inflation highlighted in December’s Monetary Policy Statement. Also, it will mark the fifth consecutive quarter of inflation below the RBNZ’s 1-3% inflation target, Westpac noted. CPI had increased by 0.4 per cent year-on-year in the third quarter of 2015, the same pace as in the previous period. The rise was primarily on account of an increase in housing-related prices. Lower petrol prices on the other hand pushed prices downward. NZ’s inflation rate averaged 4.79 per cent from 1918 until 2015. It reached an all-time high of 44 per cent in the third quarter of 1918 and a record low of -15.30 per cent in the first quarter of 1923. The drop in inflation can be attributed to fall in oil prices which has touched multi year lows and has fallen below the $30 per barrel threshold. The fall in oil has caused petrol prices in NZ to drop 5 per cent n Q4. Like in all other major economies, this drop in oil kept prices in check, preventing inflation rate from rising to targets. A big drop in food prices of 2.1 per cent is also believed to have impacted inflation significantly. Prices of tradeable goods have likely seen some increase in 2015 Q4 as the lower currency gradually started impacting retail prices. Westpac said inflation cannot be expected to rise above 1% until December 2016. Inflation below one per cent, export sector hurt by poor commodity prices and a slowdown in Auckland’s housing coupled with weak global economic outlook might present a strong case before the RBNZ to slash rates in 2016. Westpac is of the opinion that the central bank is required to slash OCR further. The OCR will likely to be cut to 2% this year, according to Westpac. The RBNZ will meet on 28th January to discuss monetary policy. This will be followed by the Governor’s speech to the Canterbury Chamber of Commerce on the 3rd of February. A rate cut this month is likely not on the cards. The central bank may reiterate that it will “reduce rates if circumstances warrant” citing poor fundamentals. Westpac expects a rate cut in June this year. We think this will be the case by June. Markets sentiments are broadly on the lines of Westpac’s estimates. For more information, read our latest forex news.