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The Reserve Bank has kept the official cash rate on hold at 2.5%.
The bank's decision to keep interest rates on hold had been widely expected.
The official cash rate has been at 2.5% since April last year.
"The New Zealand economy is recovering broadly as expected and growth is predicted to pick-up further through 2010," Reserve Bank Governor Alan Bollard says.
He says trading partner activity has recovered a little faster than expected and growth is currently strongest in China, Australia and emerging Asia.
But Bollard warns trading is much more muted in other trading partners and risks around the global outlook have increased, although not to the extreme levels seen at the height of the crisis.
"We estimate the New Zealand economy grew at a stronger pace in the December and March quarters than in the prior two quarters. Looking forward, while growth is expected to increase to about 4 percent next year, this is subdued relative to previous recoveries."
Bollard says annual CPI inflation is currently at 2% and is expected to track within the target range over the medium term but in the short term, implementation of the amended Emissions Trading Scheme and increases in ACC charges will push CPI inflation toward the top of the target range.
"Higher bank funding costs have reduced the level of stimulus that would normally be associated with any given level of the OCR. We expect these costs to persist over the projection reducing the extent of future increases in the OCR. Fiscal consolidation would also help reduce the work that monetary policy might otherwise need to do.
"We continue to expect to begin removing policy stimulus around the middle of 2010."
While indicating he would start to raise the rate again in the middle of the year, Bollard said it won't go as high as previously thought because the banks are paying very high funding costs and doing most of the work the OCR would normally have to do. The governor says this has decreased the level of stimulus.
But ANZ Chief economist Cameron Bagrie says the Reserve Bank is signalling a very strong growth projection and, based on what he's seeing, 4% growth this year looks too optimistic.
Bagrie says business investment and hiring must pick up strongly over the next six months for that recovery to become self sustaining.
