Further interest rate cuts expected


The New Zealand Institute of Economic Research believes further interest rate cuts are on the way.

It has issued its latest economic predictions and says it thinks the Official Cash Rate will be cut to 1.5 percent by the middle of next year, from 2 percent now.

The Institute (NZIER) says the high New Zealand dollar is lowering the cost of imported household goods. It predicts it will be next year before the inflation rate edges back into the Reserve Bank's (RBNZ) target range of 1-3 percent.

Weak inflation will mean the RBNZ has to cut rates again.

The Institute is also predicting that New Zealand's economic growth will be almost three percent. It believes the outlook for exports remains positive and domestic demand remains strong. Population growth will also be a positive for the economy, across all sectors and regions.

It says the "solid momentum" in the economy should be a buffer against a "fragile" global outlook.

The NZIER has identified geo-political uncertainty in the US and UK and the slowdown in China as potential risks for New Zealand.

But it says the outlook for exports continues to be positive and domestic demand remains strong.

The NZIER says construction will be a key driver of growth, with an increase in residential, commercial and infrastructure projects.