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1st Ld-Writethru: New Zealand central bank holds interest rate at 3.5 percent

Xinhua, April 30, 2015 Adjust font size:

The Reserve Bank of New Zealand (RBNZ) on Thursday held its official cash rate at 3.5 percent, citing low inflation driven by falling oil prices, but warning the country's dollar remained overvalued.

Trading partner growth continued at around its long-term average, but considerable uncertainties exist in Europe, China and Australia, RBNZ governor Graeme Wheeler said in a statement.

Global growth should be boosted by the decline in world oil prices, which were almost 50 percent below their July 2014 level, he said.

"The New Zealand economy continues to grow at an annual rate of around 3 percent, supported by low interest rates, high net immigration and construction activity, and the fall in fuel prices, " said Wheeler.

House price inflation was elevated in the biggest city of Auckland, but lower dairy incomes, the lingering effects of drought, fiscal consolidation, and the high exchange rate were weighing on the outlook for growth.

Annual consumer price index inflation was down to just 0.1 percent to the end of March, and underlying inflation remained low and was expected to pick up gradually.

The RBNZ expected to keep monetary policy stimulatory, and was not currently considering any increase in interest rates.

"On a trade-weighted basis, the New Zealand dollar continues to be unjustifiably high and unsustainable in terms of New Zealand's long-term economic fundamentals. The appreciation in the exchange rate, while our key export prices have been falling, is unwelcome, " said Wheeler.

It would be appropriate to lower the official cash rate if demand weakened, and wage and price-setting outcomes settle at levels lower than consistent with the RBNZ's inflation target range of 1 percent to 3 percent.

The official cash rate has been held at 3.5 percent since July last year and the next review will be announced on June 11. Endi