Brian Fallow: Bollard leaves no room for confusion

NZ Herald economics editor Brian Fallow

Reserve Bank governor Alan Bollard left no room for confusion in his statement this morning.

It was unequivocally dovish. In contrast to Australia, the bank's easing bias remains in place. It is not a one-way bet that the next move in the official cash rate will be up.

And there was a touch of "read my lips" about the retieration that he continues to expect to keep the OCR at or below the current 2.5 per cent until the latter part of 2010.

Any uncertainty about which risk the bank is more concerned about -- that the prospects of recovery will stifled by a resurgent dollar or the risk that recovery will happen but will be a brittle, unsustainable, housing-led one. It is the former.

There was nothing "on the one hand... but on the other" about the statement. Its language was consistently down beat: the economy remains weak, the outlook is uncertain, the recovery will be patchy and a return to healthy growth remains some time off.

And there is a clear signal that if monetary conditions - the exchange rate and wholesale interest rates - continue to be tighter than the bank assumed in its June forecasts, he may cut again.

The immediate reaction from the foreign exchange market, with the kiwi dollar down sharply against the US and Australian dollars and the euro, tells us it got the message. Whether it sticks remains to be seen.