The Reserve Bank of New Zealand on Thursday lowered its Official Cash Rate by 25 basis points, lowering the benchmark to 2.25 percent from 2.50 percent.
This came as a surprise, since most forecasts anticipated no change to the OCR.
The central bank has now pared a collective 1.25 percent from its benchmark since June, lowering the rate in five of the last seven meetings after six straight sessions with no change.
The OCR falls to a fresh record low as the country deals with continued economic slowdown.
“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,” RBNZ Governor Graeme Wheeler said in a statement accompanying the decision.
Low inflation also was a factor as the headline figure for consumer prices remains beneath the bank’s target range of 1 to 3 percent.
“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. While long-run inflation expectations are well-anchored at 2 percent, there has been a material decline in a range of inflation expectations measures,” Wheeler said.
Wheeler said that inflation does figure to rise, although it may take longer than initially expected.
The bank added that there are a number of uncertainties for the economic outlook, including prospects for global growth, particularly around China, global financial market conditions, dairy prices, net immigration, and pressures in the housing market.
The RBNZ added that further easing may be appropriate, depending on the results of forthcoming economic data.
“Further policy easing may be required to ensure that future average inflation settles near the middle of the target range. We will continue to watch closely the emerging flow of economic data,” Wheeler said.
The material has been provided by InstaForex Company – www.instaforex.com