- RBNZ holds rates at 2.50 pct but opens door to more easing
- Inflation persistently undershoots forecasts, targets
- China slowdown hits dairy prices, farmers pile up debt
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WELLINGTON, Jan 28 (Reuters) - The global curse of too-low inflation struck again on Thursday when the Reserve Bank of New Zealand kept its official cash rate on hold and reopened the door to rate cuts just a month after all but slamming it shut.
From Europe to Japan a chilling mix of falling energy prices, abundant supply and inadequate demand has policy makers taking ever more desperate measures to stave off deflation.
New Zealand has an added wrinkle as its success in attracting migrants has deepened the pool of willing workers and suppressed wages, closing another route to higher inflation.
At least New Zealand has rates to cut - at 2.5 percent its official cash rate is among the highest in the rich world. Markets have already priced in a quarter-point easing by mid-year, but analysts see the 2.0 percent level on the horizon.
Su-Lin Ong, a senior economist at RBC Capital Markets, expects cuts in both March and June.
"It's all part of the global disinflation story," said Ong. "This persistent undershooting of inflation targets is a world wide problem."
The Reserve Bank of New Zealand (RBNZ) had previously predicted inflation would creep back inside its inflation target band of 1 to 3 percent by early this year.
Yet data out last week showed consumer price inflation slowed to just 0.1 percent in the final three months of 2015, the lowest since 1999.
"The even-lower starting point for inflation suggests that annual CPI is likely to remain sub 1 percent in 2016 and barely reach 1.5 percent by the end of 2017," Ong said.
Similar problems plague the European Central Bank and the Bank of Japan, both of which are under pressure to ease again, while markets are wagering the U.S. Federal Reserve will struggle to hike rates much further this year.
Another common theme is the impact of the slowdown in China which has been a heavy weight on prices for New Zealand's major export earner - dairy.
Earlier on Thursday, dairy giant Fonterra cut its forecast payout to its 10,500 farmer shareholders, stripping some NZ$800 million out of the economy and adding to pressure on the beleaguered sector.
The central bank has repeatedly flagged the sector as a risk to financial stability and estimates around 80 percent of dairy farmers will have negative cash flow in the current season.
Farm debt is mounting so fast that Fitch recently downgraded its view on New Zealand's banking sector.
