1st LD Writethru: New Zealand central bank cuts interest rate to 2.5 pct

New Zealand's central bank cut its official cash rate by 25 basis points to 2.5 percent Thursday, citing concerns over growth at home and abroad.

Globally, economic growth was below average and inflation was low, despite highly stimulatory monetary conditions, Reserve Bank of New Zealand (RBNZ) governor Graeme Wheeler said.

Financial markets remain concerned about weaker growth in emerging economies, particularly in China, while expecting tightening of policy in the United States.

"Growth in the New Zealand economy has softened over 2015, due mainly to lower terms of trade. Combined with increases in the labor supply from strong net immigration, the slowdown has seen an increase in spare capacity and unemployment," said Wheeler.

"A recovery in export prices, the recent lift in confidence, and increasing domestic demand from the rising population are expected to see growth strengthen over the coming year."

However, the rise in the New Zealand dollar since August was unhelpful and further depreciation would be appropriate in order to support sustainable growth.

House price inflation in the biggest city of Auckland - home to a third of the population - remained high, posing a financial stability risk, but there were early signs it might be moderating.

Consumer price inflation was below the RBNZ's target range of 1 percent to 3 percent target range, but was expected to move inside the target range from early 2016.

There were a number of uncertainties and risks to the outlook, including the risks that dairy prices remained weak for longer, the prospect of net immigration staying high for longer and household expenditure picking up on the back of strong house prices.

"Monetary policy needs to be accommodative to help ensure that future average inflation settles near the middle of the target range. We expect to achieve this at current interest rate settings, although the bank will reduce rates if circumstances warrant," said Wheeler. Endit