New Zealand central bank says inflation expectations fall shows need for low rates

[WELLINGTON] New Zealand's central bank on Monday said that inflation expectations are a key issue for monetary policy.

RBNZ Assistant Governor John McDermott noted on Monday"inflation expectations have fallen significantly recently across a range of measures, and this is a concern for the Bank, contributing to the need for low interest rate settings."

Late last week the central bank surprised markets with a 25 basis point rate cut to 2.25 per cent and signaled more to come.

Mr McDermott said there has been a "material decline" in inflation expectations and they risk becoming embedded in future wage and price decisions.

"If the recent material decline in a broad range of inflation expectations measures continues, the Bank would need to reconsider the outlook for interest rates," he said.

REUTERS