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1st LD Writethru: New Zealand central bank holds interest rate at 2.25 percent

Xinhua, April 28, 2016 Adjust font size:

New Zealand's central bank on Thursday held the official cash rate (OCR) at 2.25 percent despite a raft of uncertainties in the local and international economies, but signaled a cut might be imminent.

The outlook for global growth had deteriorated over recent months due to weaker growth in China and other emerging markets, and prices for some commodities remained weak, Reserve Bank of New Zealand (RBNZ) governor Graeme Wheeler said.

Monetary conditions were extremely accommodative internationally, with considerable quantitative easing and negative policy rates in some countries, and financial market volatility had eased in recent weeks, Wheeler said in a statement.

The New Zealand economy was being supported by strong inward migration, construction activity, tourism, and accommodative monetary policy, although export prices for the pillar dairy industry remained below break-even levels for most farmers.

"The exchange rate remains higher than appropriate given New Zealand's low commodity export prices. A lower New Zealand dollar is desirable to boost tradables inflation and assist the tradables sector," said Wheeler.

House price inflation in Auckland - the country's largest city and home to a third of the population - might be picking up, with house prices remaining at very high levels and market pressures building in some other regions.

"There are many uncertainties around the outlook. Internationally, these relate to the prospects for global growth, particularly around China, and the outlook for global financial markets," said Wheeler.

"The main domestic risks relate to weakness in the dairy sector, the decline in inflation expectations, the possibility of continued high net immigration, and pressures in the housing market."

Headline inflation remained low, with annual core inflation within the RBNZ's target range of 1 percent to 3 percent.

"Long-term inflation expectations are well-anchored at 2 percent. However, as we have previously noted, there has been a material decline in shorter-term expectations," he said.

"We expect inflation to strengthen as the effects of low oil prices drop out and as capacity pressures gradually build. Monetary policy will continue to be accommodative. Further policy easing may be required to ensure that future average inflation settles near the middle of the target range."

The next OCR review will be on June 9. Endit