WELLINGTON: The Reserve Bank of New Zealand (RBNZ) on Thursday kept interest rates on hold and warned of looming risks to the outlook such as slowing growth and global trade frictions, signalling its resolve to maintain record-low rates for some time.
As expected, the central bank held the official cash rate at 1.75 percent for the 11th straight time as it works to boost tepid inflation to 2 percent, the centre of its target band.
In a slightly more dovish tone than in the previous meeting in May, the RBNZ in its statement added warnings over recent weakness in economic growth and the potential fallout from escalating trade tensions among major economies.
"The recent weaker gross domestic product (GDP) outturn implies marginally more spare capacity in the economy than we anticipated," it said.
Trade tensions in some major economies also "tempered slightly" prospects that robust global demand will underpin New Zealand's economy, it said.
"Ongoing volatility in emerging market economies continues," the statement also said, underscoring the RBNZ's concern over market fluctuations caused by steady US rate hikes.
The New Zealand dollar fell to $0.6783 after the policy announcement, before rebounding to around $0.68.
"What we've got in our judgment is slightly on the dovish side," said Nick Tuffley, chief economist at ASB Bank. "If we don't see any material improvement in business confidence or we see a lot more impact coming through from global trade tensions, you can't rule out a cut either."
New Zealand's GDP growth slowed to 0.5 percent in the first three months of this year, suggesting the economy may be in for a softer patch due to a cooling housing market and business mood.
Business confidence sank to a seven-month low in June, a survey showed on Wednesday, adding to worries.
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