New Zealand further reduces interest rates

GMT 11:24 2015 Thursday ,10 September

Arab Today, arab today New Zealand further reduces interest rates

The New Zealand economy
Wellington - AFP

New Zealand snipped a further 0.25 percentage points off interest rates on Thursday, the third reduction this year, with the central bank suggesting further easing was likely in coming months.

The cut in the official cash rate (OCR) to 2.75 percent was widely expected, following similar reductions in June and July.

"Domestically, the economy is adjusting to the sharp decline in export prices, and the consequent fall in the exchange rate," bank governor Graeme Wheeler said in a statement.

"Several factors continue to support growth, including robust tourism, strong net immigration, the large pipeline of construction activity in Auckland and other regions, and, importantly, the lower interest rates and the depreciation of the New Zealand dollar."

Wheeler said further depreciation was appropriate given the sharpness of the decline in New Zealand's export commodity prices.

The New Zealand economy is now growing at an annual rate of around 2.0 percent.

Wheeler said activity had slowed due to the levelling off of construction in the multi-billion dollar rebuild in Christchurch after the South Island city's devastating 2011 earthquakes.

"A reduction in the OCR is warranted by the softening in the economy and the need to keep future average CPI inflation near the 2.0 percent target midpoint," the bank governor said.

"At this stage, some further easing in the OCR seems likely. This will depend on the emerging flow of economic data."

Wheeler said the forecast was based on a number of assumptions, including what might happen to dairy prices, which account for about a third of exports in the farm-reliant economy.

"But we've indicated that we think another 25 basis points cut might be appropriate."

Such a cut would return the OCR to its record low of 2.5 percent last seen in January 2014.

Following the central bank announcement, the New Zealand dollar dropped by about one US cent to around 63 cents, and banks immediately moved to reduce mortgage rates.


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