New Zealand's central bank cut its benchmark Official Cash Rate (OCR) by a further 25 basis points to 2.5 percent, as expected by many, and said it will reduce the rate further if needed.
The Reserve Bank of New Zealand (RBNZ), which has now cut its rate by 100 basis points this year in response to a weakening economy and low inflation, added it expects to reach its target of inflation near 2 percent with the current OCR but would keep a close eye on the economy.
The rate cut was expected by most economists and follows the central bank's guidance in September that "some further easing in the OCR seems likely," depending on fresh data.
In its latest quarterly policy statement, the RBNZ maintained its forecast for the 90-day bill rate - an indicator of the OCR rate - to be 2.8 percent in March 2016 and 2.6 percent in December next year and remaining at that level through December 2018.
Inflation, however, was seen at 0.4 percent in December this year, down from the September forecast of 0.5 percent, and then only rising to 1.6 percent by December 2016 compared with the previous forecast of 2.2 percent.
In his statement, RBNZ Governor Graeme Wheeler voiced displeasure with the recent rise in the exchange rate of the New Zealand dollar, known as the kiwi, saying this rise was "unhelpful and further depreciation would be appropriate in order to support sustainable growth."
The kiwi started depreciating in July 2014 and fell to almost 1.60 to the dollar by late September. But since then it has risen, quoted at 1.49 today, down 14 percent since the start of this year.
New Zealand's inflation rate was steady at 0.4 percent in the third and second quarters of this year, below the RBNZ's 1-3 percent target range, mainly due to past strength in the kiwi and the 65 percent fall in world oil prices since mid-2014.
The central bank expects inflation to move into its target by March next year as the drop in petrol prices drops out of the comparison and the decline in the kiwi is reflected in higher import prices.
Wheeler reiterated his concern over high house prices in Auckland, saying this posed a risk to financial stability though he also said there were signs that house price inflation may be moderating.
The Reserve Bank of New Zealand issued the following statement by its governor Grame Wheeler.
"The Reserve Bank today reduced the Official Cash Rate (OCR) by 25 basis points to 2.5 percent.