Low rates remain the target in NZ

Inflation seeking and the reversal of an accommodating monetary policy stance remains improbable, at least in New Zealand.

The Reserve Bank of New Zealand today reiterated that it continues to expect to keep the official cash rate at or below the current level until the latter part of 2010.

The BNZ said there was more evidence that the decline in economic activity was coming to an end and that a patchy recovery is under way.

The central bank noted that inflation was currently well within the target band and is expected to track comfortably within the band over the medium term.

While financial market yields indicate that short-term rates will rise sooner than that, Alan Bollard, governor of the RBNZ, at a media briefing this morning said that "markets don't do stability particularly well. We've made our views terribly clear."

While fixed rate loans still tend to dominate household lending in New Zealand, variable rates and very short-term fixed rates are declining to the lowest levels in years.