Bollard adopts 'marginally' more cheerful tone

Reserve Bank governor Alan Bollard File photo

There is a marginally more cheerful tone to Reserve Bank governor
Alan Bollard's latest view of the economic outlook.

As expected he has left the official cash rate unchanged at 3 per cent
this morning and the load-bearing paragraph of his statement is cut and pasted from the last review six weeks ago:

"While interest rates are likely to increase modestly over the next
two years, for now it seems prudent to keep the OCR low until the recovery becomes more robust and underlying inflationary pressures show more obvious signs of increasing."

Bollard acknowledges a weaker starting point, the economy having unexpectedly contracted in the September quarter, but that is offset by the fact that "forward indicators of activity have formed somewhat".

In December he noted that corporate investment intentions were below average.

This time he points to a pick-up in business confidence and in imports of capital equipment.

He does not mention, however, that there are still no convincing signs
that the decline in business credit has bottomed out.

On the international front today's statement notes the continued expansion of trading partners' economic activity and gains in commodity prices, but has dropped December's reference to the downside risks to global growth and export prices.

December's warning that house prices might decline a little further has
been replaced by the observation that there are some tentative signs that activity in the housing market has stabilised.

Markets economists are divided as to whether the next increase in the
OCR will occur in June or September.

There is little in this statement that seems designed to move those expectations one way or the other.