New Zealand cuts benchmark rate to record low

[WELLINGTON] New Zealand's central bank returned interest rates to a record low on Thursday, in a bid to spur the stalling economy and drive up weak inflation.

The move takes the bank's benchmark rate to 2.5 per cent, matching the low set between 2011-14 to help the economy recover after a major earthquake in Christchurch.

The 0.25 per cent cut, the fourth reduction since June, was predicted by 15 out of 18 economists surveyed by Bloomberg News.

New Zealand, the world's top dairy exporter, has been struggling as a slump in global milk prices to the lowest point in more than a decade has dragged growth down to 2.5 per cent.

But Reserve Bank governor Graeme Wheeler predicted rising export prices and improving confidence would drive a pickup in the economy next year.

He also forecast that inflation would rise from 0.4 per cent currently into the bank's target range of 1.0 per cent to 3.0 per cent by early 2016.

"Monetary policy needs to be accommodative to help ensure that future average inflation settles near the middle of the target range," he said.

"We expect to achieve this at current interest rate settings, although the bank will reduce rates if circumstances warrant. We will continue to watch closely the emerging flow of economic data."

The move sent the New Zealand dollar higher, jumping to 67.37 US cents compared to 66.47 cents before the decision.

The bank is attempting to strike a monetary policy balance that encourages growth without pushing up the New Zealand dollar or fuelling a housing boom in Auckland.

AFP