WELLINGTON, July 21 (Xinhua) -- New Zealand's central bank on Thursday gave a strong indication that it will cut interest rates further this year as inflation tracks stubbornly low and the global economy continues to slow.
Prospects for growth in the global economy had diminished and significant downside risks remained, with growing financial market volatility following the UK Brexit vote, the Reserve Bank of New Zealand (RBNZ) said in an economic update.
Strong inward migration, construction activity, tourism, and accommodative monetary policy were expected to continue supporting domestic growth, but low dairy prices were depressing incomes in the pillar dairy sector.
The document listed inflation expectations, excessive house price rises and the high New Zealand dollar exchange rate among uncertainties in the domestic economy.
A drop in the exchange rate was needed if the RBNZ was to see inflation, which was currently at 0.4 percent, rise back to its 1-percent to 3-percent target range.
Further cuts to the official cash rate (OCR) - currently at 2.25 percent - were likely, it said.
"Monetary policy will continue to be accommodative. At this stage it seems likely that further policy easing will be required to ensure that future average inflation settles near the middle of the target range," said the update.
An economic note from the ASB Bank said the document was a clear message that the RBNZ was prepared to cut rates below 2 percent.
After issuing plans to tighten loan-to-value ratios on mortgage lending earlier this week, the RBNZ appeared to have shaken off concerns about stoking housing prices and appeared more comfortable about cutting the OCR.
"We continue to expect the RBNZ to cut the OCR two more times this year to 1.75 percent in response to the benign inflation outlook," said the ASB economic note.
Commercial bank chiefs and leading business figures have joined RBNZ governor Graeme Wheeler in recent days in expressing concerns about the overheated housing market and the risk to financial stability.
