New Zealand central bank leaves interest rate at 2.5 per cent

Jun 10, 2009, 21:24 GMT

Wellington - New Zealand's central bank left its benchmark interest rate at 2.5 per cent on Thursday, the first time it has not cut it in a scheduled review of monetary policy since July.

The bank had cut the so-called official cash rate (OCR) by a total of 5.75 per cent in the last 11 months and it is at its lowest mark since it was introduced in 1999.

Reserve Bank governor Alan Bollard said the economic outlook remained weak in New Zealand and in other countries, but there were signs that international economic activity was stabilising and financial conditions 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,' he said. 'Many key economic indicators such as unemployment are projected to keep deteriorating well into 2010.'

Bollard said there was a potential rebound in household spending and residential investment as a result of a rise in immigration and a 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.'

He said that with the low OCR and stimulatory fiscal policy the main sources of support to the New Zealand economy at present, it was likely to be some time before the recovery becomes self-sustaining and monetary policy support could be withdrawn.

Bollard repeated an earlier statement that he expected to keep the interest rate at or below 2.5 per cent until late next year.