The interest-driving official cash rate remains at a record 1.5% low and the Reserve Bank is clearly stating a case for cutting it in coming months.
The Reserve Bank's monetary policy committee yesterday held the OCR at 1.5%, which was the pick of all economists polled earlier in the week.
''Given the weaker global economic outlook and the risk of ongoing subdued domestic growth, a lower OCR may be needed over time to continue to meet our objectives,'' the committee said yesterday.
ASB senior economist Mark Smith said the decision was a ''close call'', noting the committee said it had ''discussed the merits of lowering the OCR at this meeting''.
''The Reserve Bank remained concerned over the global economy, highlighting the weakened outlook,'' he said in a statement.
Concerns were also flagged over the domestic growth outlook. The central bank cited a number of growth headwinds, including weak business sentiment and softer house prices. However,
it expected low interest rates and increased government spending to support a lift in economic growth and employment.
Inflation was expected to rise to the 2% mid-point of its target range, and employment to remain near its maximum sustainable level.
Westpac chief economist Dominick Stephens said the Reserve Bank seemed to have ramped up the likelihood the OCR will be reduced further, and was picking a cut in August.
The committee's release showed a growing concern about the effect on New Zealand of the weaker global economy.
Mr Stephens noted the Reserve Bank was more circumspect about developments in the domestic economy.
''The softer housing market and the increase in government spending in the Budget were seen as offsetting factors,'' he said.
''We remain of the view that the Reserve Bank will most likely cut the OCR in August.''
The central bank now has a dual mandate to support maximum sustainable employment and keep annual inflation between 1% and 3% over the medium term, with a focus on the mid-point of 2%, BusinessDesk reported.
The consumers price index rose 0.1% in the March quarter, bringing the annual rate of inflation to 1.5%, down from a 1.9% pace in December.
