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1st Ld-Writethru: New Zealand central bank cuts interest rate by 25 basis points

Xinhua, March 10, 2016 Adjust font size:

New Zealand's central bank on Thursday cut the official cash rate (OCR) by 25 basis points to an historic low of 2.25 percent, citing the risk of stubbornly low inflation.

Headline inflation - currently at 0.1 percent - remained low, mostly due to continued falls in prices for fuel and other imports, Reserve Bank of New Zealand (RBNZ) governor Graeme Wheeler said in a statement.

Annual core inflation, which excluded the effects of transitory price movements, was higher, at 1.6 percent.

"While long-run inflation expectations are well-anchored at 2 percent, there has been a material decline in a range of inflation expectations measures," said Wheeler.

"This is a concern because it increases the risk that the decline in expectations becomes self-fulfilling and subdues future inflation outcomes."

Headline inflation was expected to move higher over 2016, but take longer to reach the RBNZ's target range of 1 percent to 3 percent.

Wheeler left open the possibility of further imminent cuts to the OCR, saying they might be required to ensure that future average inflation settled near the middle of the target range.

He also said the outlook for global growth has deteriorated due to weaker growth in China and other emerging markets, and slower growth in Europe, while financial market volatility had increased and commodity prices remained low.

"Domestically, the dairy sector faces difficult challenges, but domestic growth is expected to be supported by strong inward migration, tourism, a pipeline of construction activity and accommodative monetary policy," said Wheeler.

"The trade-weighted exchange rate is more than 4 percent higher than projected in December, and a decline would be appropriate given the weakness in export prices."

He also said that house price inflation in the biggest city of Auckland - which the RBNZ previously warned was a risk to the country's financial stability - had moderated in recent months, but house prices remained at high levels and additional housing supply was needed.

Housing market pressures had been building in some other regions too. Endit