Interest rates have been left on hold by the Reserve Bank this morning.
Reserve Bank governor Alan Bollard has confirmed that rates will stay low until the "latter part of 2010".
Bollard's statement says there were now " welcome signs that economic activity is growing again".
"Activity in New Zealand's
trading partners continued to rebound during the September quarter and financial market sentiment has improved further. However, there remain significant vulnerabilities and challenges to be worked through in many economies. This process could weigh on global growth going forward," he said.
"In New Zealand, the housing market has reversed some of the decline in prices experienced over the past couple of years and a very gradual increase in household spending appears to be taking place. Government spending is also supporting activity. Business spending, however, remains weak and credit growth is very subdued."
Bollar said the high level of the New Zealand dollar had limited the scope for exports to contribute to the recovery, and "reinforces a bias towards domestic expenditure".
"The current composition of growth continues to raise questions about its sustainability. These concerns would intensify if credit growth began to propel stronger domestic demand," he said.
"The forecast recovery in economic activity is based on fiscal and monetary policy continuing to provide substantial support to the economy. We think such support remains appropriate. Further ahead, removing some of the current fiscal stimulus is likely to reduce the work that monetary policy will otherwise need to do."
"In contrast to current market pricing, we see no urgency to begin withdrawing monetary policy stimulus, and we expect to keep the OCR at the current level until the second half of 2010," said Bollard.
THE NEW OUTLOOK
* Governor Alan Bollard was widely expected to leave the OCR at 2.5 per cent, but many thought he would drop the "expectation" that it will be the latter part of next year before it starts to rise. This has not happened.
* Financial markets see rates 2 full percentage points higher by then - an exceptionally wide credibility gap.
See the Reserve Bank announcement here
