New Zealand's central bank held its Official Cash Rate (OCR) steady at 2.5 percent, as widely expected, and repeated that it expects to keep the rate "unchanged through the end of the year."
The Reserve Bank of New Zealand (RBNZ) also repeated that the New Zealand dollar remains overvalued despite having fallen over the past few weeks and continues to cause headwinds for the tradeables sector, restricting export earnings and encouraging demand for imports.
In April the RBNZ, which has held its policy rate steady since March 2011, also said it expected to keep the OCR rate steady through this year and that the currency, known as the kiwi, was overvalued.
The kiwi bottomed out in March 2009 against the U.S. dollar at $0.49 and has been rising steadily since then, hitting $0.83 at the beginning of this year. But since early May the kiwi has been falling from $0.85 to below $0.80 today. The RBNZ has confirmed it has intervened in markets.
The RBNZ said economic growth was picking up but remained uneven with consumption rising and reconstruction in Canterbury gathering pace and this will be reinforced by a broader recovery in construction, helping support overall activity and eventually easing the housing shortage. Fiscal consolidation, however, will also constrain demand.
"As previously noted, the Reserve Bank does not want to see financial or price stability comprimised by housing demand getting too far ahead of the supply response," the bank said, quoting its governor, Graeme Wheeler.
The RBNZ said its expects annual Gross Domestic Product growth to accelerate to about 3.5 percent by the second half of 2014 and inflation to rise toward the midpoint of the bank's 1-3 percent target.
New Zealand's inflation rate was stable at 0.9 percent in the first quarter, the same as in the fourth quarter and only marginally higher than 0.8 percent in the third quarter.
New Zealand's Gross Domestic Product rose by 1.5 percent in the fourth quarter from the third quarter for annual growth of 2.5 percent, up from 2.0 percent in the third quarter.