New Zealand’s central bank unexpectedly cut interest rates to a fresh record low citing slower growth in China, declining inflation expectations and…

New Zealand’s central bank unexpectedly cut interest rates to a fresh record low citing slower growth in China, declining inflation expectations and the need for a weaker local currency to help exporters as dairy prices plunge

The Reserve Bank of New Zealand on Thursday lowered its benchmark interest rate by 25 basis points to 2.25 per cent, defying expectations it would hold steady, and said further easing may be necessary

That prompted a sell-off in the New Zealand dollar, which fell 1.1 per cent to US$0.6673 against its US counterpart and 2 per cent against the Australian dollar

“The outlook for global growth has deteriorated since the December monetary policy statement, due to weaker growth in China and other emerging markets, and slower growth in Europe,” said the RBNZ in its statement

The unexpected rate cut comes ahead of a decision on rates later on Thursday by the European Central Bank, which is expected to ease monetary policy further in a bid to prevent deflation in the eurozone

New Zealand’s economy is being buffeted by a sharp fall in dairy prices, which plummeted 65 per cent in US dollar terms between February 2014 and August 2015 due to reduced Chinese demand, sanctions on Russian imports and increasing supply

In March 2014 New Zealand became the first central bank in the developed world to raise interest rates following a US decision to begin tapering its asset purchasing programme introduced during the financial crisis. At the time dairy prices were near record highs, with exports to China — New Zealand’s biggest trading partner — surging by 45 per cent to NZ$9.9bn in 2013

RBNZ governor Graham Wheeler told journalists on Thursday that weaker growth in China posed a risk to New Zealand’s growth and inflation outlook. “If China had a very significant and prolonged devaluation, it would in essence spread deflation around the world,” he said