(Adds details from RBNZ statement, background, comment from...

(Adds details from RBNZ statement, background, comment from economist, NZD reaction)

The Reserve Bank of New Zealand on Thursday reiterated that its monetary policy will continue to be accommodative and signaled more interest rate cuts were to come.

"At this state it seems likely that further monetary policy easing will be required to ensure that future average inflation settles near the middle of the target range," it said in an economic update.

The bank is mandated to keep inflation in a target range of 1 percent to 3 percent. Annual inflation is currently running at 0.4 percent.

The New Zealand dollar fell and was trading at US$0.6985 after the statement increased the chances the central bank will cut its benchmark interest rate at its Aug. 11 meeting and possibly again this year.

"The RBNZ’s statement reinforces our view that the RBNZ will cut the OCR to 2.0% in August, then cut again to 1.75% in November," said ASB Senior Economist Jane Turner.

She noted that the central bank strengthened its easing bias when it said further policy easing is likely and explicitly stated a decline in the exchange rate is needed.

The central bank underscored that the high New Zealand dollar exchange rate "makes it difficult for the Bank to meet its inflation objective."

Despite rising capacity pressures and some recent increase in fuel prices, the stronger exchange rate implies that the outlook for inflation has weakened since the June statement, it added.

As a result "monetary policy will continue to be accommodative," the central bank said.