By James Glynn
SYDNEY -- The Reserve Bank of New Zealand lowered interest rates Thursday, becoming the first central bank to respond to heightened global market volatility in the wake of Donald Trump's unexpected U.S. election win.
The Reserve Bank of New Zealand's benchmark interest rate now sits at a record low of 1.75%, down from 2.0%. The move was expected by all 10 economists surveyed by The Wall Street Journal.
RBNZ Gov. Graeme Wheeler made it clear he is worried about market instability and U.S. political upheavals, saying they could trigger further rate cuts.
"Political uncertainty remains heightened and market volatility is elevated," Mr. Wheeler said.
"Numerous uncertainties remain, particularly in respect of the international outlook, and policy may need to adjust accordingly."
In addressing reporters later, Mr. Wheeler said the decision had occurred "in light of the U.S. election results and reaffirmed that it was the right decision."
The rate cut was well telegraphed to markets, with the RBNZ frustrated that consumer prices have refused to respond to repeated interest-rate cuts this year. Still, some economists said that the U.S. political shift would cement the case for lower rates.
Citigroup economist Joshua Williamson said the RBNZ has adopted a "Trump Put," meaning if economic conditions weaken due to uncertainty in the world economy, it can cut again.
But in the absence of that downside risk, the RBNZ has indicated it doesn't need to cut further as the economy is growing solidly, he added.
Donald Trump became the U.S. president-elect Tuesday, surprising pollsters who had widely predicted Hillary Clinton would instead be heading to the White House.
Mr. Trump's win kicked of a wave of market instability as investors wait to see how he will govern. New Zealand's economy, which is commodity-based and highly reliant on trade, is in the firing line if global trade agreements are ripped up by the Trump administration.
Inflation remains well below the RBNZ 1% to 3% target range at a revised 0.4% in the third quarter. But economic growth has accelerated, dairy prices are climbing, and unemployment has fallen to its lowest level in almost eight years.
The New Zealand dollar was initially higher following the interest-rate cut, before falling back to be little changed.
Write to James Glynn at email@example.com
(END) Dow Jones Newswires
November 09, 2016 18:39 ET (23:39 GMT)
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