The Reserve Bank of New Zealand said monetary policy will continue to be accommodative and further policy easing will be required to ensure that future average inflation settles near the middle of the target range.
Headline inflation is being held below the target band by continuing negative tradables inflation, the bank said Thursday.
The bank noted that the high exchange rate is adding pressure to the dairy and manufacturing sectors, together with weak global inflation, is holding down tradable goods inflation.
This makes it difficult for the bank to meet its inflation objective. "A decline in the exchange rate is needed," the bank said.
RBNZ observed that despite rising capacity pressures and some recent increase in fuel prices, the stronger currency implies that the outlook for inflation has weakened since the June Statement.
Paul Dales Chief Australia & NZ Economist at Capital Economics, said the RBNZ used its unusual inter-meeting "economic update" to all-but guarantee that it will cut rates from 2.25 percent to 2.00 percent at the meeting on August 11.
It is clear from today's update that the RBNZ intends to lower rates to weaken the exchange rate, he added.
Earlier this week, RBNZ Governor Graeme Wheeler proposed to tighten loan-to-value restrictions to mitigate risks from financial stability stemming from property overheating.
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