The Reserve Bank's official cash rate review yesterday pulled off a smooth baton change from one governor to the next.
As expected Graeme Wheeler left the official cash rate at the all-time low of 2.5 per cent, where it has been since March last year.
The brief accompanying statement contained only subtle changes from Alan Bollard's last month.
The market reaction was to push the New Zealand dollar and wholesale interest rates higher, indicating the statement was seen as less dovish than market participants - who had convinced themselves a rate cut is in the offing - were looking for.
The bank is taking a more positive view of the international outlook.
Though the global economy remains fragile and hostage to fortune in the form of policymakers overseas, "market sentiment has improved from earlier in the year, suggesting the risks to the global outlook are more balanced". By contrast the commentary on the domestic economy is almost a verbatim repetition of the bank's view six weeks ago: "Housing market activity is increasing as expected, and repairs and reconstruction in Canterbury are boosting the construction sector. Offsetting this, fiscal consolidation is constraining demand growth, and the high New Zealand dollar is undermining export earnings and encouraging substitution toward imported goods and services."
Bank of New Zealand economist Stephen Toplis said the nod towards the currency was there "so that the bank will not be criticised for ignoring it, rather than because it is responding to it".
That said, the strength of the currency would be of concern to the central bank, Toplis said.
On a trade-weighted basis it is now 1.6 per cent above where the bank assumed it would sit through the December quarter.
Wheeler said that while the annual inflation rate had fallen to 0.8 per cent, the bank continued to expect it to head back towards the middle of the target range.
"We will continue to monitor inflation indicators, such as pricing intention and inflation expectation data, closely over coming months."
Against a background where the political consensus has broken down about the appropriate role of monetary policy - as distinct from the Reserve Bank more broadly - should be, those comments have been interpreted as a timely reminder from the new governor that his mandate is price stability, that it is the inflation outlook, and not the latest score, that matters and that keeping inflation expectations well anchored is fundamental to that task.
ASB chief economist Nick Tuffley said the statement seemed to imply the bank expected a slower pickup in inflation back to the midpoint and that it was cognisant of the risk that inflation would continue to prove weaker than it expected. Tuffley now puts the odds of an OCR cut over the next 12 months at 30 per cent, up from 20 per cent before yesterday's statement.