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New Zealand central bank maintains cash rate at 1.75%

The Reserve Bank of New Zealand kept its official cash rate unchanged at 1.75%, expecting to keep it stable through 2019 and into 2020.

The central bank said that economic growth has moderated but the bank expects it to improve over the rest of the year and through 2019.

Strong global growth and a lower New Zealand dollar exchange rate will support export earnings. Government spending and investment are set to pick up pace amid robust household spending and residential construction.

Business investment remains strong on the back of low interest rates and capacity and labor constraints. While the labor market has tightened and employment stands at nearly its maximum sustainable level, the unemployment rate is expected to decline modestly from its current level.

The central bank said inflation would rise towards 2% over the projection period amid capacity pressures, while noting early signs of core inflation increasing.

"This path may be bumpy however, with one-off price changes from global oil prices, a lower exchange rate, and announced petrol excise tax rises expected," the bank said. "We will look through this volatility as appropriate, and only respond to any persistent movements in inflation."

However, the bank noted that risks remain as the moderation in growth could last longer. Low business confidence could influence employment and investment decisions and inflation could increase at a faster rate.

"We will keep the [official cash rate] at an expansionary level for a considerable period to contribute to maximizing sustainable employment and maintaining low and stable inflation," Reserve Bank Governor Adrian Orr said.