NZD falls after RBA holds interest rate

RBA Governor Glenn Stevens has held rates but warned further cuts may be needed. Photo / Getty Images

The NZ dollar fell after the Reserve Bank of Australia (RBA) left its cash rate unchanged today.

The RBA cut the benchmark to a record low last month, saying further cuts may be appropriate to stoke sustainable economic growth.

The central bank kept the cash rate at 2.25 percent in a statement that reiterated the view expressed on Feb. 3 that moderate global economic growth seen in 2014 was likely to continue in 2015, with stronger growth in the US and slowing growth in China.

The kiwi fell to 96.32 Australian cents at 5pm in Wellington from 96.77 cents immediately before the announcement, and 96.88 cents yesterday. It gained to 75.33 US cents from 75.09 cents at 8am, and 75.21 cents yesterday.

"Further easing of policy may be appropriate over the period ahead, in order to foster sustainable growth in demand and inflation consistent with the target," said governor Glenn Stevens.

"The board will further assess the case for such action at forthcoming meetings."
Stevens repeated that the Australian dollar remains "above most estimates of its fundamental value" especially given the decline in commodity prices, although a weaker exchange rate was likely to be needed "to achieve balanced growth in the economy."

The Australian dollar climbed to 78.02 US cents from 77.69 cents immediately before the statement was released, as some traders had been betting on another rate cut as soon as today. The kiwi dollar fell to 96.45 Australian cents from 96.72 cents.

Stevens said economic growth in Australia is continuing at a "below-trend pace", with domestic demand growth overall quite weak. That had helped drive up the jobless rate and will keep the economy operating "with a degree of spare capacity for some time yet," he said.