Reserve Bank Governor Alan Bollard has held the official cash rate at a record-low 2.5 per cent this morning.
The decision was widely anticipated, with all 17 economists polled by the Reuters news organisation picking the rate to stay unchanged.
In a media release just issued, Reserve Bank Governor Alan Bollard said the economy was "recovering broadly as expected and growth is predicted to pick up further through 2010."
He said the bank expected to begin "removing policy stimulus over the coming months, provided the economy continues to evolve as projected."
The OCR is expected to push through 5 per cent in the looming tightening cycle, which will squeeze the increasing number of mortgage holders with floating or short-term loans.
"Trading partner activity has recovered more quickly than we expected," said Bollard. "Growth in Asia has been particularly strong. Consistent with this, export commodity prices have increased close to their 2008 peak. At the same time, risks to the global outlook remain elevated."
"Notwithstanding the impact of stronger than expected export earnings, New Zealand households remain cautious, with the housing market and household credit growth subdued. Similarly, business spending is weak and firms continue to reduce debt.
"On balance, we continue to expect the New Zealand economy to recover in line with or slightly faster than our March Statement projection. Annual CPI inflation, which has been close to 2 per cent for the past year, is expected to track within the target range over the medium term.
"The increased wedge between the OCR and lending rates, as well as a steeply positive-sloped interest rate curve, is expected to make OCR increases more effective than in the past. Accordingly, these factors should reduce the extent to which the OCR will need to be increased relative to previous cycles."
-NZ HERALD STAFF
See the latest OCR changes here
