New Zealand's central bank Thursday announced that the interest rate would be left unchanged at 2.5 percent, saying the high value of the New Zealand dollar would keep rates down.
Given the medium-term outlook for inflation, it was prudent to hold the Official Cash Rate (OCR) steady, said Reserve Bank of New Zealand governor Alan Bollard.
"Inflation has settled near the middle of the bank's target range, and inflation expectations have fallen," said Bollard in a statement.
"The domestic economy is showing signs of recovery. Household spending appears to have picked up over the past few months and a recovery in building activity appears to be underway."
The recovery would strengthen as repairs and reconstruction in the earthquake-battered region of Canterbury picked up later in the year, he said.
High export commodity prices were also helping to support a continuing recovery in domestic activity.
"Policy actions from a number of central banks have boosted global confidence. While encouraging, financial market sentiment remains fragile and risks to the global outlook remain. Furthermore, the easing in global monetary policy and resultant recovery in risk appetite has contributed to a marked appreciation in the New Zealand dollar," said Bollard.
"While helping contain inflation, the high value of the New Zealand dollar is detrimental to the tradable sector, undermines GDP growth and inhibits rebalancing in the New Zealand economy. Sustained strength in the New Zealand dollar would reduce the need for future increases in the OCR."
The OCR has been at the record low of 2.5 percent since March last year.
The next announcement on the OCR is