New Zealand leaves interest rates at 3.5%

[WELLINGTON] New Zealand's central bank held interest rates at 3.5 per cent on Thursday, saying lower oil prices were helping to contain inflation.

The Reserve Bank of New Zealand said the official cash rate (OCR) was likely to remain unchanged for some time as long-term inflation forecasts remain in the middle of its 1.0-3.0 per cent target range.

"Our central projection is consistent with a period of stability in the OCR," governor Graeme Wheeler said in a statement.

"However, future interest rate adjustments, either up or down, will depend on the emerging flow of economic data."

He said the domestic economy remained strong, with lower petrol prices increasing household purchasing power and lowering the cost of doing business.

However, Mr Wheeler added that a number of factors were constraining growth in the agriculture-reliant economy, including a reduced dairy payout, the risk of drought and the high exchange rate.

"A substantial downward correction in the real exchange rate is needed to put New Zealand's external accounts on a more sustainable footing," he said.

The central bank has left rates unchanged since July last year in order to assess the impact of a series of hikes that raised the base rate from 2.5 per cent to 3.5 per cent.

AFP