NZ central bank holds key interest rate steady

Reserve Bank Governor Alan Bollard said the bank saw no reason to begin withdrawing monetary policy stimulus. "There are welcome signs that economic activity is growing again," Bollard said, citing rebounding activity in the country's trading partners and improving market sentiment.

"However, there remain significant vulnerabilities and challenges to be worked through in many economies. This process could weigh on global growth going forward," he said.

He said he expected the rate would stay at the current level until the second half of 2010. Bollard said the New Zealand housing market had reversed some of the decline in prices experienced over the past couple of years and a very gradual increase in household spending appeared to be taking place.

Government spending was also supporting activity but business spending remained weak and credit growth was subdued. "The high level of the New Zealand dollar has limited the scope for exports to contribute to the recovery and reinforces a bias toward domestic expenditure," he said.

"The current composition of growth continues to raise questions about its sustainability. These concerns would intensify if credit growth began to propel stronger domestic demand.

" Bollard said inflation was expected to continue tracking comfortably within the bank's target range of 1 to 3 percent over the medium term. "The forecast recovery in economic activity is based on fiscal and monetary policy continuing to provide substantial support to the economy," he said.

"We think such support remains appropriate.".

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