WELLINGTON: New Zealand’s central bank left interest rates at a record low of 2.25 percent on Thursday, although analysts predicted there could be further cuts if inflation does not rise.
The Reserve Bank of New Zealand has lowered its benchmark rate five times in the past year but cited Auckland’s red-hot housing market as a reason for staying put in June.
Governor Graeme Wheeler warned more cuts were on the table though if inflation failed to reach the 1.0 to 3.0 percent target.
“Further policy easing may be required to ensure that future average inflation settles near the middle of the target range,” he said in a statement.
Inflation was just 0.4 percent in the year to March 31 and has been below the bank’s target for more than 18 months.
Economists said the central bank avoided a rate reduction this month because it wanted to see fresh data on the cost of living, which is due out in July.
They said it also feared further stoking Auckland’s housing market, which has been booming in recent years. The Reserve Bank said in the statement that house price inflation could “add to financial stability concerns.”
But economists said more tepid inflation figures next month would force a move.
“The major concern for the RBNZ continues to be worryingly low inflation,” IG Markets analyst Angus Nicholson said, tipping a rate cut to 2.0 percent in August.
Capital Economics, an independent forecasters, agreed and said further action could be needed if slower-than-expected economic growth kept inflation in the doldrums.
“It may even be the case that the RBNZ will yet reduce interest rates to 1.75 percent,” chief economist Paul Dales said.
The New Zealand dollar rose 0.75 US cents to 70.90 US cents after the announcement. AFP