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1st Ld-Writethru: New Zealand central bank keeps interest rates on hold

Xinhua, October 29, 2015 Adjust font size:

New Zealand's central bank on Thursday put off a further cut in its official cash rate (OCR), citing growth in the country's services and construction sectors as signs of renewed economic activity.

Reserve Bank of New Zealand (RBNZ) Governor Graeme Wheeler said the OCR would remain at 2.75 percent, although further reductions were likely to ensure consumer inflation settled at the midpoint of the bank's 1-percent to 3-percent target range.

It was appropriate to watch the emerging economic data and wait before any announcing of any more cuts to the OCR, which has been cut three times since June when it was at 3.5 percent.

Global economic growth was below average and global inflation was low despite highly stimulatory monetary policy, Wheeler said in a statement.

"Financial market volatility has eased in recent weeks, but concerns remain about the prospects for slower growth in China and East Asia especially. Financial markets are also uncertain about the timing and effects of monetary policy tightening in the United States and possible easings elsewhere," he said.

The sharp fall in global dairy prices since early 2014 continued to weigh on New Zealand farm incomes, and it was too early to say whether recent rebounds would be sustained.

"However, growth in the services sector and construction remains robust, driven by net immigration, tourism, and low interest rates," said Wheeler.

House price inflation in Auckland, New Zealand's biggest city and home to a third of the population, remained strong, posing a financial stability risk.

Consumer price index (CPI) inflation remained below the target range, but was expected to return to the range by early next year as the effects of the 60-percent fall in world oil prices since mid-2014 were offset by the fall in the New Zealand dollar since April.

"However, the exchange rate has been moving higher since September, which could, if sustained, dampen tradables sector activity and medium-term inflation. This would require a lower interest rate path than would otherwise be the case," said Wheeler.

The RBNZ's next announcement on the OCR will be on Dec. 10. Endit