RBNZ keeps key rate at 2.5% amid signs of stabilisation

"For the first time in some months we can also identify some clear upside opportunities for activity," Bollard said in Wellington today. Signs of a rebound in household spending and residential investment, a pick-up in net immigration, lower taxes and lower interest rates boost confidence New Zealand's recession is past its trough, he said. Still, the strong kiwi dollar adds an "unhelpful tension" to the central bank's projection and there is room for banks to reduce shorter-term lending rates, he said.  

Bollard reiterated his expectation that the OCR would remain low until late 2010, and said it could move "modestly lower" in the coming quarter. The global response to the credit crisis and substantial easing in monetary and fiscal policy had improved financial conditions, but the world wasn't out of the woods yet, with New Zealand likely to experience negative or weak growth for the next few quarters, he said. 

The New Zealand dollar traded at 62.88 U.S. cents, from 62.68 cents immediately before the release. The kiwi has soared 21% from its low in early March. The trade-weighted index jumped to 59.72 from 59.46 before the report. 

Bollard embarked on the steepest series of cuts to the OCR in July and has slashed 575 basis points off the benchmark rate as he seeks to revive the nation's flagging economy, which fell into recession last year.