Low oil and fuel prices and the high New Zealand dollar remain dampeners on inflation.
Holding the OCR is good news for mortgage holders, and with low global interest rates New Zealand banks were likely to continue to offer competing new mortgage rates; the SBS Bank most recently offering 4.99% over five years.
The New Zealand dollar jumped more than US1c following the monetary policy statement by Reserve Bank governor Graeme Wheeler yesterday.
ASB chief economist Nick Tuffley continued to expect that the Reserve Bank would keep the cash rate on hold ''for the foreseeable future'', with a 25% chance of a cut during the next six months.
''The Reserve Bank considers inflation expectations are currently consistent with headline inflation returning to the mid-point of the target [1% to 3%] band,'' Mr Tuffley said in a statement.
However, the Reserve Bank did note the recent decline in inflation expectations with some concern; specifically that it would watch closely the impact lower inflation expectations may have on wage- and price-setting behaviour, he said.
Following four rate increases, the OCR has been at 3.5% since July last year.
Mr Wheeler said world oil prices were about 50 % below their June 2014 peak, reflecting increased supply, rather than demand factors.
''The fall in oil prices is net positive for global economic growth, but will further reduce inflation in the near term, at a time when global inflation is already very low.
''The domestic economy remains strong. The fall in petrol prices has increased households' purchasing power and lowered the cost of doing business.''
Employment and construction activity were strong, net immigration remained high and monetary policy continues to be supportive.
''However, there are a number of factors weighing on domestic growth, including drought conditions in parts of the country, fiscal consolidation, reduced dairy incomes and the high exchange rate,'' Mr Wheeler said.
Westpac chief economist DominickStephens said the the central bank had ''retained its deadpan neutral guidance'' for future OCR moves, as expected by most economists.
''If anything, the Reserve Bank was even more firm that it does not intend to move the OCR in either direction for the foreseeable future.''
For Mr Stephens, Mr Wheeler's key guidance in the statement was: ''Our central projection is consistent with a period of stability in the OCR. Future interest rate adjustments, either up or down, will depend on the emerging flow of economic data''.
Mr Stephens said this was ''a `make no mistake policy statement - the Reserve Bank is on hold.''
He said inflation was forecast to remain below 2% for longer, Mr Wheeler's statement repeatedly said the cash rate would remain unchanged for an extended period, and an alternative scenario featuring surprisingly low inflation expectations and OCR cuts was included.
''The Reserve Bank essentially explained that it would not react to the temporarily low inflation rate this year caused directly by lower oil prices.
''Equally, the Reserve Bank will not react to the temporarily higher inflation that will result directly from any recovery in oil prices,'' Mr Stephens said.
Earlier this month, the Reserve Bank of Australia also left rates on hold, but governor Glenn Stevens said further easing ''may be appropriate over the period ahead, in order to foster sustainable growth in demand''.
Last month, it cut rates to a record low of 2.25%, after the Australian unemployment rate in January rose to a 12-year high of 6.4%, AAP reported.
On Tuesday, a National Australia Bank barometer showed business confidence at the lowest point since July 2013, while a weekly ANZ-Roy Morgan index showed consumer confidence at pre-Christmas levels.
While Australian rates are at a record low, RBA assistant governor Christopher Kent suggested there was room for more monetary policy easing.
