The Reserve Bank held the interest-driving official cash rate (OCR) at its record 2.25% low yesterday, seemingly less concerned with low inflation issues, but analysts are still expecting a cut in August.
Following the announcement the New Zealand dollar jumped from US70.18c to US71.16c.
Reserve Bank governor Graeme Wheeler said the main domestic uncertainties related to inflation expectations, the possibility of continued high net immigration and pressures in the housing market.
"Long-term inflation expectations are well-anchored at 2%. After falling in recent quarters, short-term inflation expectations appear to have stabilised,'' Mr Wheeler said.
The Reserve Bank has a 1%-3% inflation target range, but it is stubbornly sitting at 0.4%.
Of the many outlook uncertainties, Mr Wheeler said internationally those related to global growth prospects, commodity prices, financial markets' outlooks and political risks.
"Further policy easing [by an OCR cut] may be required to ensure that future average inflation settles near the middle of the target range,'' Mr Wheeler said.
Both Westpac chief economist Dominick Stephens and ASB senior economist Jane Turner said they expected the OCR to be cut in August, carrying over a prediction circulating before yesterday's bank statement.
Mr Stephens said the overall conclusion was that the Reserve Bank was "feeling less alarmed'' about the current low inflation than two months ago, but that the bank still viewed an OCR cut was "likely to be required''.
"It appears the Reserve Bank is still looking at cutting the OCR once more,'' he said.
The Reserve Bank was "more constructive on the economy'' and less worried about low inflation, he said.
Mrs Turner said financial stability concerns appeared to have influenced the Reserve Bank's decision not to cut rates.
"The Reserve Bank may be stalling to allow time to introduce further macro-prudential tools,'' she said.
She said the Reserve Bank appeared to be "slightly more upbeat'' on the global outlook and the dairy industry, which is facing a potential third consecutive season of negative cash flows, at the same time recognising their negative risks.
