The Reserve Bank of New Zealand has kept its key interest rate unchanged at 2.25 per cent.
Governor Graeme Wheeler opted to keep the official cash rate on hold despite persistent low inflation as the housing market remains very active.
Mr Wheeler said a cut may be needed down the line to ensure inflation settles in the middle of its target band of one to three per cent.
But, he said, the bank expected inflation to strengthen with low interest rates, hikes in fuel and other commodity prices, an expected depreciation in the New Zealand dollar and some increase in capacity pressures.
He said house price inflation in Auckland and other regions was causing some concerns for financial stability and said more houses were needed in the country's biggest city.
Mr Wheeler talked down the New Zealand dollar in his statement saying the currency was overvalued.
"Together with weak overseas inflation, this is holding down tradables inflation. A lower New Zealand dollar would raise tradables inflation and assist the tradables sector," he said.
A survey of economists before the decision had 14 tipping no change and eight anticipating a cut.
