OCR unchanged, Bollard drops wording rates could fall further

"There are welcome signs that economic activity is growing again," Bollard said a statement released in Wellington today.  Still, "there remain significant vulnerabilities and challenges to be worked through" globally which could drag on New Zealand's economy.

He dropped the wording of the past few statements that interest rates will remain "at or below" current levels until late next year, saying there was "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."

Bollard has to chart a careful course on the timing of interest rate increases. The economy climbed out of recession in the second quarter, business and consumer confidence is rebounding and house prices picking up. On top of that, inflation unexpectedly accelerated in the third quarter.

Still, risks remain, including a jobless rate forecast to top 7% next year and Bollard wants to avoid fanning speculation for early rate increases, which would drive up the kiwi dollar and crimp export growth.