OCR unchanged at 2.5%

Reserve Bank Governor Alan Bollard said: "The economic outlook remains weak both in New Zealand and in other countries.  However, there are signs that international economic activity is stabilising, and international financial conditions are improving.  We expect the New Zealand economy to begin growing again toward the end of this year but the recovery is likely to be slow and fragile.  Many key economic indicators such as unemployment are projected to keep deteriorating well into 2010.

"There remain some material downside risks to activity and inflation, but for the first time in some months we can also identify some clear upside opportunities for activity.  One such area is a potential rebound in household spending and residential investment as a result of the rise in net immigration and the pick-up in the housing market.  Ultimately, however, we do not think such a rebound in spending would prove sustainable given the soft outlook for employment, wages and farm incomes and high levels of household debt.

"On balance, the risks to activity remain weighted to the downside.

"The recent rise in the New Zealand dollar creates an unhelpful tension with our projections.  A stronger dollar at a time of weak global growth risks delaying or even reversing the projected increase in exports, putting the sustainability of recovery at risk.