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New Zealand central bank holds key rate, sees scope for potential easing

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New Zealand central bank holds key rate, sees scope for potential easing

The Reserve Bank of New Zealand kept the official cash rate at 1.0%, as expected, and said there is room for more monetary stimulus to support the economy.

The central bank expects rising capacity pressures and higher import costs and wages to boost inflation, which is still below the 2% target midpoint. Meanwhile, employment remains "close to its maximum sustainable level" on the back of increasing demand.

"There remains scope for more fiscal and monetary stimulus, if necessary, to support the economy and maintain our inflation and employment objectives," the bank said, adding that new data since its larger-than-expected rate cut in August "did not warrant a significant change to the monetary policy outlook."

The central bank is likely to lower rates to 0.75% by early 2020 as sluggish economic activity is expected to restrain inflation and employment growth, said Ben Udy, Australia and New Zealand economist at Capital Economics. Prashant Newnaha, senior Asia-Pacific rates strategist at TD Securities, expects such a cut as early as November.