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New Zealand central bank maintains interest rate at 1.75 pct

Xinhua, May 11, 2017 Adjust font size:

New Zealand's central bank left its official cash rate (OCR) unchanged at the historic low of 1.75 percent on Thursday, citing global challenges.

Global economic growth has increased and become more broad-based over recent months, but major challenges remain with on-going surplus capacity and extensive political uncertainty, said Reserve Bank of New Zealand governor Graeme Wheeler.

Stronger global demand has helped to raise commodity prices over the past year, which has led to some increase in headline inflation across New Zealand's trading partners, Wheeler said in a statement, adding the level of core inflation, however, has generally remained low, and monetary policy is expected to remain stimulatory in the advanced economies, but less so going forward.

The trade-weighted exchange rate has fallen 5 percent since February, partly in response to global developments and reduced interest rate differentials, he said, adding that it will help to rebalance the growth outlook towards the tradables sector if sustained.

Gross domestic product growth in the second half of 2016 was weaker than expected, but the growth outlook remains positive, supported by on-going accommodative monetary policy, strong population growth, and high levels of household spending and construction activity.

House price inflation has moderated further, especially in Auckland. The slowing in house price inflation partly reflects loan-to-value ratio restrictions and tighter lending conditions. However, there is a risk of resurgence given the continuing imbalance between supply and demand.

The increase in headline inflation in the March quarter was mainly due to higher tradables inflation, particularly petrol and food prices. Non-tradables and wage inflation remain moderate but are expected to increase gradually.

"Longer-term inflation expectations remain well-anchored at around 2 percent," said Wheeler.

Monetary policy would remain accommodative for a considerable period.

"Numerous uncertainties remain and policy may need to adjust accordingly," he said.

The OCR has been at 1.75 percent since November last year. Endit