New Zealand's central bank lowered its benchmark Official Cash Rate (OCR) by a further 25 basis points to 1.75 percent but shifted to a neutral guidance, moves that were widely anticipated.
The Reserve Bank of New Zealand (RBNZ) has now cut its rate by 75 basis points this year and by 175 points since embarking on an easing cycle in June 2015.
RBNZ Governor Graeme Wheeler said monetary policy would continue to remain accommodative but the bank expects economic growth to be strong enough for inflation to settle near the middle of its target range.
“Numerous uncertainties remain, particularly in respect of the international outlook, and policy may need to adjust accordingly,” Wheeler said.
In contrast Wheeler said in September, when the RBNZ left its rate unchanged, that “further policy easing will be required to ensure that future inflation settles near the middle of the target range.”
New Zealand's inflation rate was steady at 0.4 percent in the third quarter of this year, recently revised from an initial 0.2 percent due to a processing error, well below the bank's target of 2.0 percent, plus/minus 1 percentage point.
But the RBNZ expects inflation to start to rise from the fourth quarter, reflecting its easy policy stance, accelerating economic activity and reduced drag from inflation linked to trade.
As in the previous policy statement from September, Wheeler said the exchange rate of the New Zealand dollar – known as the kiwi – remains too high and puts pressure on the country's exporters and continues to generate negative inflation through imports.
“A decline in the exchange rate is needed,” Wheeler said, repeating his plea from September.
The kiwi began depreciating in July 2014 and fell to a low of almost 1.60 to the U.S. dollar in September last year, a level not seen since 2009.
But since then, it has appreciated firmed and was trading at 1.38 to the U.S. dollar today for a rise of 5.8 percent since the start of this year, pushed up by low global interest rates that is keeping upward pressure the exchange rate.
The Reserve Bank of New Zealand issued the following statement by Governor Graeme Wheeler: