NZ central bank leaves rates on hold

October 29, 2009 03:52:02 PM

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New Zealand's central bank left the official interest rate on hold at a record low of 2.5 percent Thursday, saying it did not expect to start raising it until the second half of next year.

Reserve Bank of New Zealand governor Alan Bollard's comments about the timing of any likely rise represented a slight change from his previous outlook that the rate would not rise until late next year.

Signs the economy is growing again and a recent rise in interest rates in Australia have prompted economists to predict the New Zealand central bank would raise the official cash rate (OCR) in the first half of next year.

But Bollard said monetary policy support was still needed to support a recovery.

"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," he said.

There were signs economic activity was growing again, although there were still "significant vulnerabilities and challenges" in many economies, which could weigh on global growth.

New Zealand gross domestic product (GDP) rose less than 0.1 percent in the June quarter following five quarters of contraction.

Because of the recession, the central bank progressively cut the official cash rate from a high of 8.25 percent in the middle of last year to its lowest level since its introduction in 1999.

Bollard said Thursday the housing market and household spending were picking up and government spending was supporting activity.

"Business spending, however, remains weak and credit growth is very subdued," Bollard said.

The high level of the New Zealand dollar was hampering exports and the current composition of growth was raising questions about the recovery's sustainability, he said.