So far the bank has shaved about half a percentage point off its forecast for trading partner growth. It expects export commodity prices to soften a little but remain high.
If recent global developments have only a mild impact on the New Zealand economy, it is likely the OCR will have to increase, he said. But for now it is prudent to keep it on hold.
Market economists now expect it to be March next year before the OCR is raised. The end-point of the rise in short-term interest rates the bank's forecasts have pencilled in has been lowered from 4.9 per cent to 4.3 per cent, but most of the increase is slated for next year.
The New Zealand dollar dropped to US81.28c yesterday after Bollard made his announcement. It was at US82.03c at 8am and US81.79c at 5pm on Wednesday.
The Reserve Bank statement devotes a lot of attention to the impact Europe's sovereign debt crisis has already had in tightening up the overseas funding markets on which New Zealand banks rely.
Right now the banks have plenty of liquidity and credit growth is weak so they have not had to turn to those markets for funding. Higher funding costs, flowing through to higher lending rates, look like next year's story. But the Reserve Bank is wary of the risk that the markets seize up altogether, as they did after the collapse of Lehman Brothers in 2008.
If need be it could resort to the mechanisms it used during the global financial crisis to shore up liquidity in the New Zealand banking system, though at this stage it did not expect to have to, Bollard told Parliament's finance and expenditure select committee. And the Reserve Bank is in a better position than many central banks in that it has scope to cut the OCR should it need to, he said.
But if things get really ugly in Europe, tipping the world into another recession, the monetary policy statement expresses some concern about how much ammunition policymakers have left. "Policy rates are already close to zero in many developed countries and government deficits are already large, limiting the scope for further fiscal stimulus," it says.
ANZ chief economist Cameron Bagrie said: "The global scene promises to be full of more flip-flops over the coming years than you would usually find at Bondi beach. You don't get out of a financial crisis in a couple of years."
Bollard hinted at an expectation that a prolonged economic diet might be needed to follow the last decade's gorging on debt.
He ended his press conference with a Hebrew proverb: "He who eats till he is sick, must fast till he is well."
