1st LD Writethru: New Zealand central bank cuts interest rate to record low 1.75 percent

New Zealand's central bank on Thursday cut 25 basis points off its official interest rate, taking it to a record low of 1.75 percent, citing heightened political uncertainty, market volatility and a weak global economy.

The Reserve Bank of New Zealand (RBNZ) said it would maintain an accommodative monetary policy, but its current projections and assumptions indicated the cut to the official cash rate and other policy settings would see growth strong enough to have inflation settle near the middle of its target range of between 1 and 3 percent.

"Significant surplus capacity exists across the global economy despite improved economic indicators in some countries. Global inflation remains weak even though commodity prices have come off their lows. Political uncertainty remains heightened and market volatility is elevated," RBNZ Governor Graeme Wheeler said.

The exchange rate remained higher than was sustainable for balanced economic growth and, together with low global inflation, continued to generate negative inflation in the tradables sector.

"A decline in the exchange rate is needed," said Wheeler.

"Domestic growth is being supported by strong population growth, construction activity, tourism, and accommodative monetary policy," he said, adding that high net immigration is supporting growth in labor supply and limiting wage pressure.

House price inflation remained "excessive" and was "posing concerns for financial stability."

Headline inflation continued to track below the target range by ongoing negative tradables inflation.

Annual CPI inflation at 0.4 percent was weak in the September quarter, but was expected to rise from the December quarter, reflecting the policy stimulus to date, the strength of the domestic economy and reduced drag from tradables inflation.

"Numerous uncertainties remain, particularly in respect of the international outlook, and policy may need to adjust accordingly." Endit