Following is the text of Reserve Bank of New Zealand Governor Graeme Wheeler’s statement in Wellington Thursday.

The Reserve Bank today reduced the Official Cash Rate (OCR) by 25 basis
points to 2.25 percent.

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. This is despite extraordinary monetary
accommodation, and further declines in interest rates in several countries.
Financial market volatility has increased, reflected in higher credit
spreads. Commodity prices remain low.

Domestically, the dairy sector faces difficult challenges, but domestic
growth is expected to be supported by strong inward migration, tourism, a
pipeline of construction activity and accommodative monetary policy.

The trade-weighted exchange rate is more than 4 percent higher than projected
in December, and a decline would be appropriate given the weakness in export
prices.

House price inflation in Auckland has moderated in recent months, but house
prices remain at high levels and additional housing supply is needed. Housing
market pressures have been building in some other regions.

There are many risks to the outlook. Internationally, these are to the
downside and relate to the prospects for global growth, particularly around
China, and the outlook for global financial markets. The main domestic risks
relate to weakness in the dairy sector, the decline in inflation
expectations, the possibility of continued high net immigration, and
pressures in the housing market.

Headline inflation remains low, mostly due to continued falls in prices for
fuel and other imports. Annual core inflation, which excludes the effects of
transitory price movements, is higher, at 1.6 percent.

While long-run inflation expectations are well-anchored at 2 percent, there
has been a material decline in a range of inflation expectations measures.
This is a concern because it increases the risk that the decline in
expectations becomes self-fulfilling and subdues future inflation outcomes.

Headline inflation is expected to move higher over 2016, but take longer to
reach the target range. Monetary policy will continue to be accommodative.
Further policy easing may be required to ensure that future average inflation
settles near the middle of the target range. We will continue to watch
closely the emerging flow of economic data.

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