Interest rate rise still possible: Bollard

Bollard's official cash rate (OCR) is unchanged at 7.25% but he says the inflation outlook and the stronger than expected economy means "we are less confident that no further policy tightening will be required in this cycle."

The central bank isn't expecting inflation, currently at 4%, to fall back below 3%, the top end of its target, until late 2007.

Brendan O'Donovan, chief economist at Westpac, says wholesale interest rates rose 6 or 7 basis points and the currency 0.76 points on a trade-weighted basis in reaction to the statement.

New Zealand's relatively high interest rates have been driving the currency higher recently and, by talking about the risks of another rate hike, Bollard "is effectively giving the currency wings," O'Donovan says.