Reserve Bank of New Zealand governor Alan Bollard seems more confident of lowering the official cash rate because easing in the banks' funding market means any further cut will translate into lower lending rates in the economy. "With the improvement in bank funding conditions, we expect any further monetary policy adjustments to be transmitted quickly in lending rates to the economy," Bollard said in a speech to the Hawke's Bay Chamber of Commerce yesterday. After cutting the OCR to record low of 2.50 per cent in April, the Reserve Bank stayed pat on rates at the latest monetary policy meeting in June. The main reason may have been its disappointment over banks not passing on the full effect of lower OCR, mainly on the floating mortgage rates. Banks insist increases in local as well as overseas funding rates had raised their funding costs and reduced their ability to pass on lower rates. With funding conditions now improved, Bollard may be ready to cut the OCR as banks are now more likely to transmit lower rates to the economy. Bollard said the immediate priority is to lift the economy out of recession and noted the current monetary policy settings are very stimulatory. Bollard once again emphasised on the need for a weaker NZ dollar over the coming years to support an export-led recovery in the economy. While he expects the currency to correct to weak levels due to NZ's imbalances relative to its trading partners, he is also mindful this may not necessarily happen as financial markets may behave otherwise. "All that can be hoped for is that, in the next phase of recovery in financial market sentiment and return of risk-seeking, the markets will be more discriminating about New Zealand," Bollard said. A weak NZ dollar will not only boost exports but also discourage households from purchasing imports, Bollard added.