'There is pretty much no inflation in NZ' - Reserve Bank keeps OCR on hold at 2.5%

The Reserve Bank has kept the Official Cash Rate at 2.5 per cent.

The Reserve Bank has also indicated it may need to cut interest rates as the price of oil continues to drop and impact overseas markets. Source: 1 NEWS

Uncertainty about the strength of the global economy has increased due to weaker growth in the developing world and concerns about China and other emerging markets.

Prices for a range of commodities, particularly oil, remain weak.

Financial market volatility has increased, and global inflation remains at a record low.

ONE News Political Editor Corin Dann said China's growth rate has been called into question, creating nerves, while there is almost no inflation in New Zealand.

"The Reserve Bank needs to keep it between one and three per cent," he said, adding there will likely be a cut by the end of the year, with some economists predicting the first cut in March.

Political Editor Corin Dann explains why. Source: 1 NEWS

"For home borrowers, possibly, you could see those fixed rates come down a bit."

In recent weeks, there has been some easing in financial conditions, as the New Zealand dollar exchange rate and market interest rates have declined.

A further depreciation in the exchange rate is appropriate given the ongoing weakness in export prices.

This has some economists worried about deflation.

The Reserve Bank governor Graeme Wheeler last month cut the OCR by 25 basis points to 2.5 per cent.

In December, the bank said further cuts later this year weren't being ruled out if need be.