The Reserve Bank of New Zealand on Thursday pared its Official Cash Rate to a new record low of 1.75 percent.
The decision was in line with expectations following no move in September. The central bank trimmed its benchmark by 25 basis points in August after holding fire for two straight months.
The central bank has pared a collective 1.50 percent from its benchmark in the last 12 months, lowering the rate in six of the last 11 meetings after six straight sessions with no change.
Low inflation was a key factor in allowing the bank to stand pat, RBNZ Governor Graeme Wheeler noted, as the headline figure for consumer prices has stabilized near the bank’s target range of 1 to 3 percent.
“Annual inflation is 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,” Wheeler said in a statement accompanying the decision.
He also called the exchange rate for the New Zealand dollar higher than appropriate, and added that as a primary factor for the low inflation rate.
“The exchange rate remains higher than is sustainable for balanced economic growth and, together with low global inflation, continues to generate negative inflation in the tradables sector. A decline in the exchange rate is needed,” Wheeler said.
The bank added that domestic growth is expected to be fueled by construction activity, tourism, and accommodative monetary policy – although low dairy prices continue to depress incomes.
“Monetary policy will continue to be accommodative. Our current projections and assumptions indicate that policy settings, including today’s easing, will see growth strong enough to have inflation settle near the middle of the target range,” Wheeler said.
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