The Reserve Bank did little to ease the interest rate pain being experienced by householders about to refinance their mortgage when it yesterday left the official cash rate unchanged.
The central bank intended leaving official interest rates at or below the current level of 2.5% until the last part of next year, governor Alan Bollard said.
Retail banks will get some breathing space with Dr Bollard keeping the OCR unchanged.
The banks came in for criticism this week by MPs concerned about lending rates being kept artificially high so the banks could continue to make large profits.
Westpac responded to that criticism by lifting two of its fixed rates, although it was the last bank to do so in the current round of interest rate rises.
The banks have defended themselves against accusations of profit gouging but an unchanged OCR will allow them to keep increasing interest rates almost unchallenged.
Dr Bollard said the official cash rate could still move "modestly lower" over the coming quarters.
"The low OCR and stimulatory fiscal policy are the main sources of support to the New Zealand economy at present. It is likely to be some time before the recovery becomes self-sustaining and monetary policy support can be withdrawn."
The Reserve Bank expected the New Zealand economy to begin growing again towards the end of this year but the recovery was likely to be slow and fragile.
Many key economic indicators, such as unemployment, were projected to keep deteriorating well into next year, he said.
There remained some risks to activity and inflation but, for the first time in months, the central bank could also identify positive signs for growth.
One such area was a potential rebound in household spending and residential investment as a result of the rise in net immigration and the pick-up in the housing market.
"Ultimately, however, we do not think such a rebound in spending would prove sustainable given the soft outlook for employment, wages and farm incomes and high levels of household debt," Dr Bollard said.
New Zealand Manufacturing Exporters Association chief executive John Walley said the unchanged rate was likely to cause interest rates and the exchange rate to remain high.
The impact of an overvalued exchange rate and high interest rates, combined with the collapse of international markets, was clear.
Overseas trade statistics released on Wednesday showed export prices fell 8.2% in March but the association's survey showed a "massive" 59% drop off in sales.
"We believe demand is much greater than the Reserve Bank has indicated."
A greater concern in the medium-term was a large drop in imports of capital goods.
That suggested New Zealand firms were not investing in new technology to lift their productivity, Mr Walley said.
It was no longer acceptable to simply bemoan the volatility of the country's exchange rate.
Many of New Zealand's competitors were acting to reduce the value of their currency.
Countries such as the United States and the United Kingdom were setting lower interest rates and printing money.
"We should be doing more. It is difficult to see how the same monetary policy settings are suddenly going to produce different results."
ASB economist Jane Turner said that while the Reserve Bank explicitly mentioned scope for further cuts, its 90-day forecast did not incorporate another cut.
"The Reserve Bank may think it has done enough for now and the threshold for further cuts is now higher.
"The bank seems resigned to the fact the New Zealand dollar and longer-term rates are higher than would be ideal."
