New Zealand's central bank cut its Official Cash Rate (OCR) for the third time in a row by 25 basis points, as widely expected, and repeated that "some further easing in the OCR seems likely," depending on the emerging flow of economic data.
The Reserve Bank of New Zealand (RBNZ), which has now cut its key rate by 75 basis points this year to 2.75 percent, added that today's cut was "warranted by the softening in the economy and the need to keep future average CPI inflation near the 2 percent target midpoint."
In its July statement the RBNZ also said further easing seemed likely but did not qualify this statement as today when it made further rate cuts dependent on how the economy evolves.
In his statement, RBNZ Governor Graeme Wheeler said the lower exchange rate of the New Zealand dollar, known as the kiwi, was supporting the export and import-competing sectors but "further depreciation is appropriate, given the sharpness of the decline in New Zealand's export commodity prices."
The kiwi has been depreciating against the U.S. dollar since hitting a high of 1.13 in July 2014 and is now at levels not seen since May 2009. In response to the RBNZ's cut and the likelihood of further cuts, the kiwi fell to 1.596 to the dollar from 1.566 to be down 20 percent this year.
Inflation in New Zealand rose to 0.4 percent in the second quarter from 0.3 percent in the first quarter but well below the central bank's 1-3 percent target range. The RBNZ attributed low inflation to the previous strength in the New Zealand dollar and the halving of oil prices since mid-2014.
Although the central bank acknowledged "considerable uncertainty" around the magnitude of how the fall in the exchange rate will impact inflation, it still expects inflation to return to "well within the target range by early 2016" as the earlier fall in petrol prices drops out of annual comparisons and as the exchange rate depreciation passes through to higher prices.
The Reserve Bank of New Zealand issued the following statement: