Reserve Bank Governor Graeme Wheeler said: “The outlook for monetary policy remains consistent with that described in the March Monetary Policy Statement.
“Despite continued strains in Europe and disappointing data in some countries most recently, global financial market sentiment remains buoyant and the medium-term outlook for New Zealand’s overall trading partner GDP growth remains firm.
“Growth in the New Zealand economy has picked up. Consumer spending has increased and rebuild activity in Canterbury is gaining momentum. House price inflation is high in some regions, despite prices already being elevated. The Bank does not want to see financial or price stability compromised by housing demand getting too far ahead of supply.
“Fiscal consolidation is constraining aggregate demand. In addition, drought has lowered agricultural production and will likely also negatively affect farm output in the coming season. International dairy prices have spiked higher in response to the drought, but these price gains could prove temporary.
“The New Zealand dollar remains overvalued and is higher than projected in March. Further appreciation has occurred partly in response to the announcement of a substantial quantitative easing programme in Japan. The high New Zealand dollar continues to be a significant headwind for the tradables sector, restricting export earnings and encouraging demand for imports.
“The CPI increased 0.9 percent in the year to the March quarter and is expected to remain close to the bottom of the target range this year. Weak near-term inflation prospects need to be balanced against our projection for inflation to gradually rise towards the 2 percent target midpoint.
“At this point, we expect to keep the OCR unchanged through the end of the year.”