The Reserve Bank has left the benchmark interest on hold at 2.5% and reiterated it expects to start hiking the cost of borrowing from the middle of the year.
Reserve Bank Governor Alan Bollard says the economy is in recovery stage but remains fragile.
In his statement on Thursday, Dr Bollard said the New Zealand economy is recovering broadly as expected and growth is predicted to pick up further through 2010.
"Trading partner activity has recovered a little faster than expected," the statement continued.
"Currently, growth is strongest in China, Australia, and emerging Asia, but is much more muted in other trading partners. At the same time, 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% next year, this is subdued relative to previous recoveries."
Despite higher business and consumer confidence, Dr Bollard said, households remain cautious. House sales and credit growth remain subdued and business spending is weak.
Inflation is currently at 2% and is expected to remain within the target range of 1%-3% over the medium term despite the introduction of the Emissions Trading Scheme and increases in ACC charges later this year.
Dr Bollard repeated his call for the Government to restrain its spending plans to help keep expected increases in the cost of borrowing in check.
He expects to start raising the benchmark rate from the middle of the year as the economic recovery picks up, but says he is not sure whether it will go up in large amounts or gradually.
Goldman Sachs JB Were economist Philip Borkin says the tone of the Reserve Bank's announcement highlights the sluggish and fragile nature of the economic recovery.
He expects the Reserve Bank to start raising the cash rate in June, or as late as September if the economy shows no marked signs of pickup.
The New Zealand dollar dropped almost half a cent against the US dollar after the announcement, and at midday was trading at 70.2 US cents. By about 5pm it was slightly lower, at 69.79 US cents.
In July 2008, the Reserve Bank reduced the rate from 8.25% to 8%, which had been the first cut since July 2003.
Last week, Australia's central bank raised interest rates by 25 basis points to 4%, the first rise this year.