RBNZ firm on commitment to keep rates low

The Reserve Bank of New Zealand stood firm on its interest rate stance in the face of growing pressure to change the duration of its low rate outlook, especially after the Australian central bank surprised by hiking rates earlier this month.

Governor Alan Bollard only tweaked the most important line in a periodic statement on monetary policy, now committing to the current low level of the official cash rate until the second half of 2010 from "at or below the current level through until the latter part of 2010."

The statement yesterday said "In contrast to current market pricing, we see 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's commitment may seem brave but not without any reason. The Governor remains sceptical about the sustainability of the current composition of growth, particularly the fall in exports.

Data released later yesterday showed New Zealand's exports fell 6.8 per cent in the September quarter and marked the third straight quarter of decline.

Bollard also noted that business spending remains weak and credit growth is very subdued. This view was echoed on Wednesday by Bank of New Zealand's Andrew Thorburn. He did not think his forecast of a fall in business lending was contradicting the growth signs that seemed to be emerging in the NZ economy.