The Reserve Bank has left the Official Cash Rate unchanged at a record low 2.5%.
This was largely expected by market watchers but record low, but many are curious about what the bank has to say about the strength of the New Zealand economy.
The June monetary policy statement signalled the bank's intention to start raising rates in December and pencilled in 2 percentage points of increases by the end of next year.
A Bloomberg survey of 15 forecasters found two, including the BNZ, calling a September start, five calling October and 11 by December.
In a statement issued this morning, Reserve Bank Governor Alan Bollard said:
"The economy has grown more strongly than was expected, and it appears that the recovery is getting back on track, supported by a strong terms of trade. At the same time, however, current fragility in global financial markets, including the uncertainty around the US Government's debt ceiling, continues to highlight the downside risk to trading partner activity noted in the June Statement.
"Annual headline CPI inflation continues to be above the Bank's 1 to 3% target band.
''However, much of the current spike in inflation has been driven by the October 2010 increase in the rate of GST, and will therefore be temporary. Wage and price setters should focus on underlying inflation, which is currently estimated to be below 2.5%.
"Provided current global financial risks recede and the economy continues to recover, the bank sees little need for the March 2011 'insurance' cut to remain in place much longer. The current very high value of the New Zealand dollar is acting as a drag on the New Zealand economy. If this persists, it is likely to reduce the need for further OCR increases in the short term."
Westpac chief economist Dominick Stephens earlier this week said he expected today's statement would "broadly reaffirm" the December start date for interest rate hikes.
"Markets are responding to news of stronger growth and inflation, but there are equally important offsets in the sharp rise in the New Zealand dollar and signs of slower growth among our trading partners," he said.
Gross domestic product in the March quarter grew 0.8 per cent, despite the Christchurch earthquake in the middle of it, when the Reserve Bank had forecast just 0.3%.
Business confidence rose for the fourth month in a row this month, despite a host of factors that might otherwise be expected to damp expectations for the period ahead, according to the latest National Bank Business Outlook survey.
A net 48% of businesses expect better times over the coming year, with the construction sector leading the way, ahead of the Christchurch reconstruction.
Activity, profitability, investment and employment measures are all up significantly, in a result described as "tremendously encouraging" by the bank's chief economist, Cameron Bagrie.
