Low interest rates were further cemented in place today when the Reserve Bank kept its official cash rate (OCR) at 1.75 per cent.

The central bank said it would keep the OCR at an expansionary level for a considerable period to contribute to maximising sustainable employment, and maintaining low and stable inflation.

While the language of the statement was little changed from the last one in November, the New Zealand dollar rallied by three quarters of a US cent to US68.13 cents in response to it.

Westpac senior markets strategist Imre Speizer said the currency rallied because the statement was "not as dovish as expected".


The Reserve Bank's release follows moves by other major central banks to adopt an Increasingly dovish monetary policy stance so far this year.

On January 30, the US Federal Reserve shelved plans to lift rates further because of the possible risks to US growth.

The message given by the Reserve Bank was similar to the last statement in November, in as much as it still expects the OCR to be at its current level for 2019 and 2020.

It also said the next move could be up or down.

Employment is near its maximum sustainable level, it said.

However, core consumer price inflation remained below its 2 per cent target mid-point, necessitating continued supportive monetary policy.

Trading-partner growth was expected to further moderate in 2019 and global commodity prices have already softened, reducing the tailwind that New Zealand economic activity has benefited from, it said.

"The risk of a sharper downturn in trading-partner growth has also heightened over recent months," the bank said.

"Despite the weaker global impetus, we expect low interest rates and government spending to support a pick-up in New Zealand's GDP growth over 2019."

Low interest rates, and continued employment growth, should support household spending and business investment.

Westpac's Speizer said he thought the "on hold" period would have been pushed out to 2021, but he said the currency's reaction was "large" given the low level of surprise.

Economists said the statement delivered was broadly in line with expectations, with a note of added caution on the global environment coming through.

"We continue to expect that the next move in the OCR will be down," ANZ economists said in a commetnary.

"In our view, growth this year will fail to accelerate to the degree that the RBNZ forecasts, with it gradually becoming clear that more monetary stimulus will be needed to generate a sustained lift in inflation," ANZ said, adding the timing of the first cut is uncertain.

"But on balance, we think the need for OCR cuts will become apparent by year end, with our forecasts incorporating the first move in November, with two to follow next year," ANZ said.

NZIER principal economist Christina Leung said she still expected the Reserve Bank's next move to be up, but probably not until 2020, based on what she expects to be building inflation pressures.

The Reserve Bank's official cash rate has been on hold since November 2016.