New Zealand's central bank left its Official Cash Rate (OCR) unchanged at 2.5 percent, as expected, saying the country's economic recovery was uneven with both upside and downside risks so it expects to keep the key rate steady for the rest of the year.
The Reserve Bank of New Zealand (RBNZ), which has held its rate steady since March 2011, said demand and output was expanding with rebuilding from the Canterbury earthquake gaining momentum and residential investment and business and consumer confidence was rising.
"House price inflation is increasing and the Bank does not want to see financial stability or inflation risks accentuated by housing demand getting too far ahead of supply," the RBNZ said.
However, the the labor market remains weak and the "overvalued New Zealand dollar is undermining profitability in export and import competing industries, and worsening drought conditions are creating difficulty in much of the country," the bank said, adding that fiscal consolidation will also slow overall demand.
"There are both upside and downside risks to this outlook. At this point we expect to keep the OCR unchanged through the end of the year," the RBNZ said, quoting its governor Grame Wheeler.
New Zealand's inflation rate was 0.9 percent in the fourth quarter of 2012, close to the third quarter's 0.8 percent and the second quarter's 1.0 percent.
The RBNZ targets inflation of 1-3 percent.
New Zealand's Gross Domestic Product expanded by 0.2 percent in the third quarter from the second for annual growth of 2.0 percent, down from the third quarter's 2.6 percent.