Reserve Bank governor Alan Bollard yesterday issued a warning to financial markets, telling them not to be too hasty in adjusting interest rates.
"In contrast to current market pricing, we see no urgency to begin withdrawing monetary policy stimulus and we expect to keep the OCR at the current level until the second half of 2010," he said when leaving the central lending rate at 2.5%.
There were welcome signs that economic activity was growing again but the current composition of growth continued to raise questions about its sustainability.
Those concerns would intensify if credit growth began to propel stronger domestic demand, he said.
The high level of the dollar had limited the scope for exports to contribute to the recovery and reinforced a bias towards domestic expenditure.
After some short-term correction, it was fairly likely to see the current account deficit begin to widen in the medium term, Dr Bollard said.
Annual inflation was expected to continue to track comfortably within the target range in the medium term.
"The forecast recovery in economic activity is based on fiscal and monetary policy continuing to provide substantial support to the economy. We think such support remains appropriate."
ANZ-National Bank chief economist Cameron Bagrie said the Reserve Bank had moved to a neutral stance with the easing bias removed as expected.
"We share the Reserve Bank's caution over the economic outlook and see a need for keeping rates on hold for some time."
Mr Bagrie remained "comfortable" with his call for a September 2010 start to the tightening cycle.
