The Reserve Bank (RBNZ) has held rates steady for a fourth consecutive meeting but again warned monetary policy might need to be tighter for longer to bring inflation under control.
Wrapping up its monetary policy review meeting on Wednesday, the central bank said the official cash rate would remain at 5.5 percent.
"Interest rates are constraining economic activity and reducing inflationary pressure as required," the RBNZ's monetary policy committee (MPC) said. "While GDP growth in the June quarter was stronger than anticipated, the growth outlook remains subdued. With monetary conditions remaining restrictive, spending growth is expected to decline further.
"While the imbalance between supply and demand continues to moderate in the New Zealand economy, a prolonged period of subdued activity is required to reduce inflationary pressure."
What could add another dynamic to the RBNZ's next rates decision in November, however, was the stablising of the housing market, said Daniel Clouston, the chief executive of real estate firm Ray White New Zealand.
New data from CoreLogic on Wednesday showed property values across Aotearoa flat-lined in September, with the national average sitting just above $900,000.
"If the recovery gathers pace, this will be a significant factor in their decision making in their next review on November 29," Clouston said of the housing market.
But the MPC stressed house prices remained around sustainable level estimates.
"Financial conditions have continued to tighten with an increase in wholesale and retail lending rates," it said. "Members noted that the average mortgage rate on outstanding loans continues to rise and debt servicing costs as a share of income are still increasing.
"Members also noted that house prices were slightly higher but that this was on low sales volumes."
Over the previous quarter, inflation ticked down to 6 percent year-on-year - suggesting the rates were working to cool the economy. However, spending needed to "remain subdued to better match the economy's ability to supply goods and services, so that consumer price inflation returns to its target range [of 1-3 percent]", the MPC said.
