Bollard left his official cash rate (OCR) unchanged at 3% and said while it is likely to rise modestly over the next two years, he won't be moving it "until the recovery becomes more robust and underlying inflationary pressures show more obvious signs of increasing."

Bollard specifically referred to weak household spending, weakening housing market activity and the prospect house prices "may decline a little further in the near term," dashing hopes raised by Quotable Value's suggestion earlier this week that house prices may be stabilising.

"The main thing the Reserve Bank is responding to is weaker than expected activity through the middle six months of this year," says Brendan O'Donovan, chief economist at Westpac.

"They've pushed out the next rate hike to be in quarter three 2011 rather than quarter one," O'Donovan says.

Right throughout the forecast period, the central bank has lowered its interest rate expectations by about 30 to 40 basis points, he says.

"The Reserve Bank is forecasting a recovery still and they're anticipating better consumption and investment but they want to see it before they respond to it."

Bollard also said current low rates are having less of a stimulatory effect than in the past.

"The big change is how the Reserve Bank is viewing the effectiveness of interest rates," says Nick Tuffley, chief economist at ASB Bank.

While once a neutral OCR rate, neither stimulating nor impeding the economy, was regarded as about 6.5%, now its probably about 4.5% and even at current low levels the stimulatory effect is a lot less than previously thought, Tuffley says.

"Therefore there's no rush in lifting (the OCR) right now. They can leave rates on hold for longer." Tuffley says the next OCR rise may be in June or July next year.

Robin Clements at UBS New Zealand says Bollard has still made it clear he will be lifting the OCR at some stage but the tone is definitely more dovish than previously.

"Now, the emphasis is on keeping rates low until the economy is stronger."