New Zealand keeps interest rates at record low

[WELLINGTON] New Zealand's central bank left interest rates at a record low of 2.0 per cent Thursday but warned more cuts were likely.

The decision was widely expected after the Reserve Bank of New Zealand (RBNZ) trimmed its base rate by 0.25 points in August.

"Monetary policy will continue to be accommodative," governor Graeme Wheeler said in a statement.

"Our current projections and assumptions indicate that further policy easing will be required to ensure that future inflation settles near the middle of the target range."

Annual inflation was 0.4 per cent in the second quarter and has stubbornly remained below the central bank's 1.0-3.0 per cent target for seven quarters.

Meanwhile, the New Zealand dollar has remained high, placing pressure on the export sector, despite repeated attempts by the central bank to talk it down.

"A decline in the exchange rate is needed," Mr Wheeler reiterated in his statement.

However, the bank is reluctant to cut rates too aggressively in case it further fuels a house price boom centred on Auckland, the nation's largest city.

"House price inflation remains excessive, posing concerns for financial stability," Mr Wheeler said.

Data released last week showing strong economic growth of 3.6 per cent in the year to June 30 removed pressure on the bank to act immediately.

Market watchers expect it to cut the base rate to 1.75 per cent at its next meeting in November, with some tipping a further cut to 1.5 per cent early next year.

AFP