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Reserve Bank governor Alan Bollard has kept the official cash rate on hold at 2.5%, saying there is more evidence a patchy recovery is underway.
The record low rate was set in April.
In announcing the decision, Bollard says there is more evidence that the decline in economic activity is coming to an end.
"This is partly due to recovery in our trading partner economies in the June quarter and these look likely to continue expanding in the short term."
"Domestically, retail spending appears to have stopped falling, following a rise in net immigration and a pick-up in the housing market over recent months."
But he says the medium-term growth outlook remains weak.
"We expect household spending to grow only modestly given weak income growth and a reduced appetite to take on debt," he says.
"Business profits are under pressure because of the low level of activity and the elevated New Zealand dollar. This limits the scope for employment and investment to rebound quickly."
He says for growth to be sustained in the medium term, there is a need for improved competitiveness in exports and a continued recovery of household savings.
"This rebalancing is required to stabilise New Zealand's external payments position.
"If the exchange rate were to continue its recent appreciation and/or the recovery in house prices were to undermine the improvement in household savings, then the sustainability of the present recovery will be brought into question."
Bollard has also repeated his advice that the bank does not expect to increase the OCR until late 2010.
"As we have said previously, the forecast recovery in economic activity is based on monetary policy continuing to provide substantial support to the economy. We expect such support will be needed for some time."
TVNZ's business editor Corin Dann says the Bollard's statement contained a very clear warning for borrowers.
"When Dr Bollard does eventually start putting up rates some time late next year, it will be fast," he says.
"According to the statement, the 90 day bank bill will rise from 2.9% in December 2010 to 4.6% in December 2011. The 90 day is a pretty good indicator of the OCR track going forward.
"Some in the financial markets are tipping it to be even higher by 2011. Westpac is suggesting the OCR will be at 6% by then. So that would make the floating somewhere around 9%."
Read business editor Corin Dann's blog on the decision
