New Zealand's central bank left its Official Cash Rate (OCR) steady at 2.75 percent, as expected by most economists, and confirmed that "some further reduction in the OCR seems likely" to ensure that inflation rises to the middle of the target range, with the timing of any move dependent on economic data.
"It is appropriate at present to watch and wait," Graeme Wheeler, governor of the Reserve Bank of New Zealand (RBNZ) said.
The RBNZ has cut its rate by 75 basis points this year, most recently by 25 points in September when it also said that further easing of the key rate was likely, depending on economic data.
Since the September policy decision, the New Zealand dollar has firmed, global dairy prices have risen and home prices in Auckland have continued to rise.
Earlier this month Wheeler reiterated that the RBNZ was likely to cut rates again but underscored that he was wary of inflaming the housing market and wants to retain some room to ease policy further in the event of a global economic downturn.
Economists viewed Wheeler's speech on Oct. 14 as signaling that the central bank would wait until its monetary policy review in December to cut rates again.
"House price inflation in Auckland remains strong, posing a financial stability risk," Wheeler said today, adding that residential building is accelerating but it will take time to meet the supply shortfall.
New Zealand's inflation rate was unchanged at 0.4 percent in the third quarter of the year, with the RBNZ expecting it to return to the 1-3 percent target range by early 2016 as the impact of the fall in oil prices drops out of the comparison and consumer prices adjust to the fall in the exchange rate from April to September.
But since September, the exchange rate of the New Zealand dollar - known as the kiwi - has risen, which Wheeler said could dampen inflation and exports, leading to "a lower interest rate path than otherwise would be the case."
After dropping from 1.30 to the U.S. dollar in April to almost 1.60 in September, the kiwi has firmed since late September to trade around 1.50 to the dollar today, down 14.7 percent this year.
The Reserve Bank of New Zealand issued the following statement by its governor, Graeme Wheeler:
"The Reserve Bank today left the Official Cash Rate (OCR) unchanged at 2.75 percent.