New Zealand's central bank cut the official interest rate by 25 basis points to a record low of 2.00% and indicated further reductions are likely.
The move was in line with expectations following an economic update by the Reserve Bank in July that cited a slow trend in global growth despite support by “unprecedented levels of monetary stimulus.”
According to Reserve Bank of New Zealand Gov. Graeme Wheeler , "Our current projections and assumptions indicate that further policy easing will be required to ensure that future inflation settles near the middle of the target range."
More Cuts Needed
In addition to today’s cut, economists believe that the Reserve Bank needs to commit to continuing rate cuts if it wants to try to push consumer price inflation higher and tame a strong New Zealand dollar. The kiwi has been a constant worry for the central bank with the trade-weighted index coming in significantly higher than assumed in the bank's June Monetary Policy Statement. The high exchange rate is adding further pressure to the export and import sectors and together with low global inflation, is creating negative inflation in these sectors.
A low inflation rate is another key issue for the central bank, and it is working to keep inflation within a target range of 1% to 3%. At just 0.4%, annual inflation is currently well outside that range. Mr. Wheeler said Thursday annual consumer price inflation is expected to weaken in the September quarter, but rise from the December quarter.