Westpac expects gradual interest adjustment by RBNZ next year

WELLINGTON, Dec 1 (Reuters) - Westpac said on Tuesday eased its expectation of deeper cuts in interest rate saying it was now expecting the Reserve Bank of New Zealand (RBNZ) to cut rates twice next year to -0.25% by August.

The bank had previously forecast three cuts beginning in April, and the rates to reach -0.5% by August.

The prospects of deeper interest rate cuts looked less likely after New Zealand's central bank said last week that it would re-impose mortgage curbs and work with the government on fixing a housing bubble.

"We now expect the RBNZ will choose a slower return to the inflation and employment targets, via more gradual interest rate adjustments," Westpac Chief Economist Dominick Stephens said in a note.

This less-aggressive approach to interest rate cuts and positive vaccine news will also mean a higher exchange rate, Westpac said.

It is now forecasting that NZD/USD will rise to 74 cents by the middle of the year. The NZD/AUD will linger in the low-90s rather than dropping below 90 cents, it added. (Reporting by Praveen Menon; Editing by Nick Zieminski)