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1st LD Writethru: New Zealand central bank holds interest rate at 2.5 percent

Xinhua, January 28, 2016 Adjust font size:

New Zealand's central bank on Thursday held its official cash rate (OCR) at 2.5 percent citing concerns over slowing economic growth and persistent low inflation.

Uncertainty about the strength of the global economy has increased due to weaker growth in the developing world and concerns about China and other emerging markets, said Reserve Bank of New Zealand (RBNZ) governor Graeme Wheeler.

"Prices for a range of commodities, particularly oil, remain weak. Financial market volatility has increased, and global inflation remains low," Wheeler said in a statement.

"The domestic economy softened during the first half of 2015 driven by the lower terms of trade. However, growth is expected to increase in 2016 as a result of continued strong net immigration, tourism, a solid pipeline of construction activity, and the lift in business and consumer confidence."

The continued easing of the New Zealand dollar exchange rate would be appropriate given the ongoing weakness in export prices.

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

"There are many risks around the outlook. These relate to the prospects for global growth, particularly around China, global financial market conditions, dairy prices, net immigration, and pressures in the housing market," said Wheeler.

Headline consumer price index inflation remained low, mainly due to falling fuel prices, but was expected to increase over 2016.

It would take longer to reach the RBNZ's target range of 1 percent to 3 percent than previously expected.

Cuts to the OCR might be needed over the coming year to ensure that future average inflation settled near the middle of the target range, he said.

Earlier this week, ratings agency Fitch revised down its assessment of New Zealand's near-term growth prospects.

It held the country's sovereign rating at AA, but forecast economic growth of 2.4 percent this year, and 2.6 percent in 2017, a slower pace than earlier forecast. Endit