News: UPDATE 1-NZ's central bank stands pat but keeps door open to easing

(Adds more comments from Wheeler, details and background)

New Zealand's central bank held its benchmark interest rate at 2.0 percent on Thursday but reiterated that further easing will be required.

Seventeen of 18 economists polled by Reuters had expected the Reserve Bank of New Zealand (RBNZ) to remain on hold, while one had forecast a 25 basis point rate cut. [NZ/POLL]

"Monetary policy will continue to be accommodative. Our current projections and assumptions indicate that further policy easing will be required to ensure that future inflation settles near the middle of the target range," said Governor Graeme Wheeler in a statement.

The central bank is mandated with keeping annual inflation at between 1 percent and 3 percent. It is currently running at 0.4 percent.

Governor Wheeler noted that annual CPI inflation is expected to weaken in the September quarter, but is tipping a rise after that "reflecting the policy stimulus to date." New Zealand's central bank has cut rates twice this year to the current record low of 2.0 percent.

He said, however, that while long-term inflation expectations are well-anchored at 2 percent "the sustained weakness in headline inflation risks further declines in inflation expectations."

Wheeler also underscored that the high exchange rate was making it difficult for the central bank to meet its inflation objective.

He said weak global conditions and low interest rates relative to New Zealand are placing pressure on the export and import-competing sectors.

"A decline in the exchange rate is needed," he said. The New Zealand dollar initially eased on the statement but pared its losses and was unchanged at 0.7350.

The central bank governor also continued to express concern about New Zealand house prices. "House price inflation remains excessive, posing concerns for financial stability," he said.

Economists said the market reaction was muted as the statement was largely as expected.

"Measured and balanced is the way we'd view it, a very similar statement to what they delivered in August," said ANZ Economist Philip Borkin.

He noted the easing bias is clearly still evident "so the door is well and truly open to further easing. We expect that to come in November."