The Reserve Bank has left the official cash rate unchanged at 3.5 percent, and signalled it will remain there for the next two years.
Governor Graeme Wheeler said the economy is expected to grow at an annual rate of between 3 and 4 percent for the next two years, underpinned by robust construction activity and more people in work, while Auckland's housing market is again picking up pace.
Reserve Bank Governor Graeme Wheeler. Photo: RNZ / Diego Opatowski
Lower oil prices are also helping boost household's purchasing power and reducing the cost of doing business.
But Dr Wheeler pointed out risks in the form of lower dairy payouts, drought conditions in parts of the country and the high dollar - all of which will weigh on growth.
Despite the economy growing, it was not translating into higher prices, he said.
Inflation is expected to fall to about zero in the March quarter and remain low this year, this resulting from the high dollar, low global inflation and recent falls in petrol prices.
Dr Wheeler said the central bank will also monitor inflation expectations closely, which have recently fallen below the Reserve Bank's 2 percent inflation target.
Indeed, the central bank's projections have inflation peaking at 1.7 percent over the forecast period to March 2017.
Which is the reason the business community, unions and some, mainly overseas-based, economists have said Dr Wheeler can and should cut rates.
But for central bankers, trained and blooded in the arena of keeping prices in check when economies grow above trend, that is a difficult proposition,
While inflation is subdued, the Reserve Bank reasons the growing economy will steadily soak up spare production and workers.
And resurgent house prices in Auckland will also alarm Dr Wheeler, who fears an American-style collapse during the financial crisis that helped cripple its economy.
The Reserve Bank is exploring further options to existing lending restrictions to curb housing demand among investors. Other measures may be introduced.
Nevertheless, Dr Wheeler did not rule out an interest rate cut depending on how the economy performs.
Financial markets think he will however, pricing in a 64 percent chance of a cut this year.
Whatever happens, many economies wish they had Dr Wheeler's problems.
The OCR has stood at 3.5 percent since last July.
