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New Zealand's central bank cut 25 basis points off its official cash rate (OCR) Thursday and indicated more cuts were likely as economic growth slowed and inflation continued to track near zero.
The cut, which brings the OCR to 3 percent, is the second in six weeks, following a 25-basis-point cut in early June and comes ahead of a previously indicated cut later in the year.
Reserve Bank of New Zealand (RBNZ) Governor Graeme Wheeler said global economic growth remained moderate, and recent developments in Europe had led to heightened uncertainty and increased financial market volatility.
"Particular uncertainty remains around the impact of the expected tightening in US monetary policy," Wheeler said in a statement.
New Zealand's economy was currently growing at an annual rate of around 2.5 percent, supported by low interest rates, construction activity, and high net immigration, but the annual outlook was now softer than it had been in June.
The rebuild activity in the earthquake-battered Canterbury region appeared to have peaked, and the global price for New Zealand's dairy exports had fallen sharply, he said.
Headline inflation was currently below the RBNZ's target range of 1 percent to 3 percent, due largely to the recent strength of the New Zealand dollar and a large drop in world oil prices.
However, annual consumer price index was expected to start tracking towards 2 percent in early 2016, due to the falling value of the New Zealand dollar and the rebound in oil prices.
The New Zealand dollar has declined significantly since April and, with lower interest rates, has led to an easing in monetary conditions.
Further depreciation of the currency is necessary given the weakness in export commodity prices.
"A reduction in the OCR is warranted by the softening in the economic outlook and low inflation. At this point, some further easing seems likely," said Wheeler. Enditem
