The Reserve Bank of New Zealand has cut its key interest rate for the 5th time in a year, reducing the Official Cash Rate by 25 basis points to 2.25%, citing the weak outlook for growth internationally and slowing activity in the domestic economy.
And the central bank maintained its easing bias, saying in this morning’s statement that the “further easing” may be needed.
The statement also made clear that the latest cut was also driven by the need to put downward pressure on the value of the Kiwi dollar which has risen since December.
The move wasn’t a surprise to many in the markets – the Kiwi central bank has been signalling its easing bias now for months and economists said they saw a rate cut either at this meeting,or the next one in May.
"There are many risks to the outlook. Internationally, these are to the downside and relate to the prospects for global growth, particularly around China, and the outlook for global financial markets, the bank said in this morning’s statement.
"The main domestic risks relate to weakness in the dairy sector, the decline in inflation expectations, the possibility of continued high net immigration, and pressures in the housing market.
"Headline inflation remains low, mostly due to continued falls in prices for fuel and other imports. Annual core inflation, which excludes the effects of transitory price movements, is higher, at 1.6 percent. "
"Domestically, the dairy sector faces difficult challenges, but domestic growth is expected to be supported by strong inward migration, tourism, a pipeline of construction activity and accommodative monetary policy.
“The trade-weighted exchange rate is more than 4 percent higher than projected in December, and a decline would be appropriate given the weakness in export prices,” the bank said.
