One of the big questions economies around the globe are wrestling with is whether the extraordinary degree of monetary stimulus introduced in recent years is still necessary. Business editor Dene Mackenzie investigates.
New Zealand's official cash rate is not at the same sort of extreme levels as policy rates in other economies such as the United Kingdom.
However, Westpac acting chief economist Michael Gordon says the OCR has been at record lows for an extended period.
Now, with headline inflation back around the mid-point of the Reserve Bank's 1% to 3% target range, and a rise in hawkish sentiment globally, market pricing for OCR rises had increased in recent weeks.
That did not imply a shift to "tight policy'', or even neutral settings. Rather, it was a question of whether there was scope for monetary policy to shift to slightly less stimulatory, but still very accommodative, levels.
At the heart of the discussion were two interconnected concerns, he said.
First, was economic growth self-sustaining, or was it still dependent on support from monetary policy?
Secondly, was there a risk inflation could rise to levels that would raise concerns about longer-term price stability if policy settings remained unchanged?
Related to both of those questions was whether there were other risks associated with an extended period of highly stimulatory policy, such as an increase in debt levels, Mr Gordon said.
Recent surveys were pointing towards positive demand conditions in the economy.
Confidence among households had risen to its highest levels since 2015 and gains were spread across the country.
At the same time, businesses nationwide were reporting strength in activity. Importantly, the strength was expected to be sustained in coming months and had contributed to a rise in both hiring intentions and plans for capital expenditure, he said.
"But while the positive tone of recent economic data is certainly a welcome development, much of the strength in economic conditions is still being underpinned by the low level of interest rates.''
Low rates had been particularly important in terms of encouraging strength in areas such as construction which had been a key driver of economic growth and employment in recent years.
The low level of interest rates was also an important factor in encouraging investment spending, Mr Gordon said.
ANZ chief economist Cameron Bagrie said the economy was disappointing at the start of the year.
March quarter gross domestic product (GDP) growth of 0.5% followed growth of just 0.4% in the three months ended December.
Nature might have played a part but growth was still undeniably sub-par.
After what was a "reasonably decent'' performance for most of 2016, the economy "came off the foils'', despite many leading indicators continuing to provide positive signals.
A perplexing divergence had opened up between hard and soft data of late. The former was flagging 4% annual economic growth but only 2.5% had been achieved, he said.
The hard-soft data divergence was not unique to New Zealand. Many economies were struggling to achieve the rates of growth typically seen historically.
Weak productivity, elevated debt levels, unfavourable demographics, poor policy maneuverability and political risks were big headwinds to surmount.
Reality was often failing to meet expectations, Mr Bagrie said.
The ANZ expected growth to accelerate in the second and third quarters this year to an average pace of 0.9% quarter-on-quarter.
In part, that would reflect some technical factors, particularly a recovery in net exports after dragging by an average of 1% per quarter over the past three quarters and a reduced drag from the initial introduction of loan-to-value restrictions.
There were many tail winds. Financial conditions were supportive, the terms of trade were set to hit all-time highs, New Zealand was still the place to be for migrants and solid household income growth should support spending.
The elevated value of the dollar was being offset by a strong terms of trade. Auckland house prices had hit the reverse button although the rest of New Zealand was still seeing "decent growth''. Credit growth was slowing but it was a tempered moderation, he said.
Mr Bagrie warned the forecasts were still unsettled. Skill shortages were crimping the economy's ability to grow.
Finding skilled labour and the associated fallout for wage demands would become a more relevant issue in coming years.
"A strong focus on productivity will be critical if we are to avoid real wage movements undermining competitive positions.''
Westpac's Michael Gordon said with the strengthening of economic activity, there had been a firming in inflation.
Looking through the temporary volatility associated with recent moves in produce and fuel prices, core inflation measures had lifted and were now running at levels close to the mid-point of the Reserve Bank's band.
Looking forward, conditions did not indicate much for the central bank to be worried about, he said.
On the cost front, there had been a gradual rise in the number of businesses reporting increases in the past year, but only to average levels.
"Putting all this together, we think the OCR should remain on hold for some time yet and are not forecasting a rise through 2017 or 2018.
"While inflation has firmed, it's not at alarming levels and continued monetary policy stimulus will be required to ensure it remains around the target mid-point over the longer term.''
