Reserve Bank Governor Alan Bollard has left the official cash rate (OCR) unchanged at 2.5 percent, and indicated he is comfortable with the outlook for inflation.
While headline inflation was being boosted by recent rises in indirect taxes, annual inflation was expected to settle "comfortably" within the target band once those tax increases dropped out of the annual rate, Dr Bollard said in a statement today.
"Given the outlook for core inflation and continued economic disruption stemming from the (Canterbury)earthquakes, the current level of the OCR is likely to remain appropriate for some time."
The outlook for the New Zealand economy remained "very uncertain" following the February earthquake in Christchurch, Dr Bollard said.
The OCR had been cut following that quake to help limit adverse effects, and business confidence and consumer spending had since shown signs of recovery after initially declining sharply, but many firms and households remained adversely affected in Christchurch.
"To date, activity in the rest of the country appears relatively unaffected, with housing market turnover and business investment beginning to increase," Dr Bollard said.
"Trading partner growth remains robust, helping push New Zealand's export commodity prices higher. Along with relatively favourable climatic conditions, the improved price outlook is supporting a pickup in on-farm investment."
But higher oil prices and the elevated level of the New Zealand dollar were both "unwelcome", and would have some dampening effect on economic activity.
