The central bank said economic growth is expected to accelerate over the second half of 2020 driven by monetary and fiscal stimulus, and the high terms of trade.
The outlook for government investment was stronger following the Government's announcements in December. There were also indications household spending growth will increase, the bank said.
The global economic environment has shown signs of stabilising and trade tensions have receded somewhat, it said.
"However, the COVID-19 (coronavirus) outbreak is an emerging downside risk."
"We assume the overall economic impact of the coronavirus outbreak in New Zealand will be of a short duration, with most of the impacts in the first half of 2020.
"Nevertheless, some sectors are being significantly affected."
The Reserve Bank said there was a risk that the impact will be larger and more persistent.
"Monetary policy has time to adjust if needed as more information becomes available," it said.
ASB Bank chief economist Nick Tuffley said the underlying tone of the statement was more upbeat than its last statement in November.
"The threshold for a cut does look high, and entirely contingent on the coronavirus," he said in a commentary.
Tuffley said ASB had decided to pull the May official cash rate cut that it had forecast but said a cut remained a distinct possibility.
"Our more up-to-date estimate of the economic impact on New Zealand of the virus is 0.6 percentage points rather than the 0.3 percentage points the Reserve Bank has factored in," he said.
ASB noted that drought conditions have just been declared.
"The risks are skewed to a prolonged period before New Zealand sees a noticeable rebound in its key export earnings," Tuffley said.
"As it is, trend growth is really only in the early stages of lifting from an anaemic pace and is vulnerable to shocks."
The Reserve Bank, in its economic forecasts, predicted its next rate hike would be mid-way through next year - too optimistic for some commentators.
"Today, the Reserve Bank donned their rose-coloured glasses to look through the expected fall-out from the coronavirus on the local economy," David McLeish, Fisher Funds senior portfolio manager — fixed interest - said.
"If not for the coronavirus outbreak, the Bank had every reason to deliver a more upbeat assessment of the economy," he said.
"However, bringing forward their forecast for the first official cash rate hike into mid-2021 seems much too optimistic to us," McLeish said.
