New Zealand's central bank left its benchmark Official Cash Rate (OCR) at 2.25 percent, as expected by most analysts, and reiterated its guidance from April that its policy will remain accommodative and "further policy easing may be required to ensure that future average inflation settles near the middle of the target range."
The Reserve Bank of New Zealand (RBNZ), which surprised financial markets by cutting its rate by 25 basis points in March, also repeated its call for a lower exchange rate of the New Zealand dollar, known as the kiwi, to help boost inflation and make the country's exports more competitive.
The kiwi started depreciating in July 2014 and fell to a low of almost 1.60 to the U.S. dollar in September last year, a level not seen since 2009.
Since then, it has steadily firmed and was trading at 1.42 to the dollar today, up from 1.46 at the start of this year, or by 2.8 percent, as speculation mounts that the U.S. Federal Reserve won't cut rates at its next meeting on June 15.
RBNZ Governor Graeme Wheeler said the central bank expects inflation to strengthen in light of the bank's accommodate policy, higher fuel and commodity prices and "an expected depreciation in the New Zealand dollar" and some increase in capacity pressures.
New Zealand's inflation rate rose to 0.4 percent in the first quarter of this year from 0.1 percent in the final 2015 quarter but remains far below the RBNZ's target of 2.0 percent, plus/minus 1 percentage point.
In its June monetary policy statement, the RBNZ maintained its forecast for consumer price inflation to average 0.4 percent this year but raised the 2017 forecast to 1.5 percent from 1.3 percent forecast in March. For 2018 the central bank forecast inflation of 2.1 percent and 1.9 percent in 2019 compared with its previous forecast of 2.0 percent and 2.0 percent.
The central bank's forecast for the 90-day rate, a proxy for the OCR, was seen averaging 3.0 percent this year, unchanged from the previous forecast, with the forecasts for 2017, 2018 and 2019 also unchanged at 2.3 percent, 2.1 percent and 2.1 percent, respectively.
Economic growth in New Zealand was seen averaging 2.4 percent this year, down from 3.6 percent in 2015, but slightly up from 2.3 percent forecast in March. In 2017 growth is seen rising to 3.2 percent, up from 3.1 percent previously forecast, and then by 3.0 percent in 2018 and 2.1 percent in 2019.
The Reserve Bank of New Zealand issued the following statement by its governor, Graeme Wheeler:
"The Reserve Bank today left the Official Cash Rate unchanged at 2.25 percent.
Monetary policy will continue to be accommodative. Further policy easing may be required to ensure that future average inflation settles near the middle of the target range. We will continue to watch closely the emerging flow of economic data."