Wellington - New Zealand's central bank left its benchmark interest rate at 8.25 per cent cent in a scheduled review of monetary policy on Thursday but said it expected to be able to cut it later in the year.

The Reserve Bank's official cash rate (OCR) has been at 8.25 per cent - one of the highest in the developed world - since July in a bid to contain inflation within its target range of 1 to 3 per cent.

Bank governor Alan Bollard said annual inflation was expected to peak at 4.7 per cent in the September quarter but should return comfortably inside the target band over the medium term.

"This is based on the expectation that commodity prices stop rising, inflation expectations remain anchored and weakening economic activity contributes to an easing in non-tradable inflation," he said.

Bollard said the bank projected little growth in gross domestic product over 2008, and only a modest recovery after, largely reflecting a weaker household sector.

"Provided the economy evolves in line with our projection, we are now likely to be in a position to lower the OCR later this year, which is sooner than previously envisaged." (dpa)