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New Zealand flags rate cut likely as economy slows

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The Reserve Bank of New Zealand, which trimmed its Official Cash Rate (OCR) to a record low of 1.5 per cent last month, noted a number of central banks around the world were easing monetary policy to support demand.

[WELLINGTON] New Zealand's central bank left interest rates on hold Wednesday but signalled a cut was coming as it seeks to stimulate an economy flagging in the face of a global slowdown.

The Reserve Bank of New Zealand, which trimmed its Official Cash Rate (OCR) to a record low of 1.5 per cent last month, noted a number of central banks around the world were easing monetary policy to support demand.

It said it decided against another reduction this month but was closely monitoring the situation as data points to a weakening outlook for New Zealand's economy.

"Given the weaker global economic outlook and the risk of ongoing subdued domestic growth, a lower OCR may be needed over time to continue to meet our objectives," the bank said in a statement.

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Figures released this month showed growth at a sluggish 0.6 per cent in the first three months of 2019, taking annual expansion to 2.7 per cent for the year to March 31.

The Reserve Bank's cautious outlook comes as the International Monetary Fund warned New Zealand's economy had recently lost momentum.

"Risks to the outlook are increasingly tilted to the downside," it said, citing a slowing housing market and the potential for rising global protectionism to hit the country's exports

The central bank's next monetary policy meeting is in August and Westpac Bank's head of New Zealand strategy Imre Speizer tipped another cut, citing the dovish language used in Wednesday's statement.

"Given the tone of this statement from the RBNZ, we remain of the view that the RBNZ will most likely cut the OCR in August," he said in a note to clients.

"The repeated comment that a lower OCR may be needed is blunter than the language used in March, which was followed by a cut in May."

AFP