WELLINGTON, New Zealand – New Zealand’s central bank on Thursday cut interest rates to a record low 1.75 per cent in an effort to boost inflation and lower the value of the currency.
The Reserve Bank cut its benchmark rate by 0.25 per cent, its seventh quarter-point cut since June 2015. The move was expected by most economists. The bank is projecting it will keep rates low for several more years.
Bank Governor Graeme Wheeler said that around the world, economic conditions are weak and interest rates low, which is putting upward pressure on the kiwi dollar.
New Zealand’s economy is growing at a robust annual rate of about 3.6 per cent. Wheeler said that’s thanks to a growing population as well as strength in the construction and tourism industries.
The nation’s annual inflation rate is 0.4 per cent, well below the bank’s target of about 2 per cent. The New Zealand dollar is worth about US$0.73, which is higher than exporters would like. The country’s economy relies on exports of dairy products to China.
By lowering interest rates, the reserve bank risks fueling a runaway housing market.
“House price inflation remains excessive and is posing concerns for financial stability,” Wheeler said
New Zealand’s government had been hoping to boost exports by signing a trade deal with the U.S. and a number of Asian countries. But Donald Trump has opposed the Trans-Pacific Partnership, and his election as the next U.S. president this week may mean the deal is dead.