WELLINGTON (Reuters) - The New Zealand central bank's monetary policy stance fits the country's subdued inflation conditions, the International Monetary Fund said in its annual report on Wednesday.
"With downside risks to growth, employment, and inflation, insufficient monetary accommodation still is a bigger concern than upside risks to inflation if the monetary policy stance turned out to be too expansionary," the IMF said in comments following an annual visit to consult on New Zealand's economy.
New Zealand's inflation is currently below the midpoint of the central bank's 2% target.
The Reserve Bank of New Zealand (RBNZ) is meeting on Wednesday to set the benchmark interest rates. The bank cut rates by 25 basis points to a record low of 1.50% at its last meeting in May, reflecting a somewhat weaker inflation outlook..
Economists polled by Reuters expected RBNZ to hold interest rates steady on Wednesday but keep the door open for further easing.
The IMF said in the report that New Zealand’s economic expansion was solid but had lost momentum recently.
Although the downside risks to the growth outlook have increased, New Zealand has the policy space to respond should such risks materialise, the report said.
The IMF also said it thought the New Zealand dollar was moderately overvalued.
"I think if you look at where the New Zealand dollar is, it’s still above its long-term average, which is one possible indication of strength. But we also say it’s moderately overvalued, which is typically within the range of uncertainty," IMF's chief of mission for New Zealand said at a media briefing in Wellington.
(Reporting by Charlotte Greenfield and Praveen Menon; Editing by Rosalba O'Brien and Peter Cooney)
