THE Reserve Bank of New Zealand held its official cash rate steady at 2.5 per cent yesterday and said the pace and timing of any increases would be guided by the speed of the economic recovery. "For now, it remains appropriate for monetary policy to be supportive given the current softness of the economy and the inflated level of the New Zealand dollar," Reserve Bank governor Alan Bollard said in a statement that accompanied the decision. Of the 15 economists surveyed by Dow Jones Newswires, all had expected the central bank to keep rates on hold. In March, the Reserve Bank cut the cash rate by 0.5 percentage points to 2.5 per cent to offset the impact of a second earthquake that devastated New Zealand's second largest city of Christchurch in February. The rate has remained on hold. Yesterday, however, Mr Bollard was more upbeat about the economy and less sanguine about inflation. "The outlook for the New Zealand economy has improved," he said. While economic activity was significantly disrupted by the earthquake, he said "it appears the negative confidence effect of the earthquake on economic activity throughout the rest of the country has been limited". Mr Bollard said he expected a significant economic pick-up once earthquake reconstruction got under way. "Canterbury reconstruction is projected to add 2 percentage points to growth over 2012," he said. Even excluding reconstruction, gross domestic product was expected to be quite robust, reflecting the stimulatory effects of high export commodity prices.

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