Households cautious about spending

Households are looking after their money more carefully than had been expected, Reserve Bank Governor Alan Bollard told Parliament's finance and expenditure select committee today.

He said New Zealand was on "a reasonably benign" inflation track and price expectations were stable.

"We're seeing households and businesses that are less confident about the speed of recovery and the extent to which they would re-commit funds into spending and investment," he said.

"They seem to have a view that they need to address debt to a greater extent than we had predicted in June."

Dr Bollard said there was a need to rebalance the economy "and in fact the private sector in New Zealand is doing it a little bit faster than we had expected...that makes balance sheets look better but it makes growth stories not look so good".

Dr Bollard was briefing the committee after announcing earlier today that the Reserve Bank was keeping the official cash rate (OCR) at 3 per cent.

The New Zealand dollar fell sharply against the US and Australian dollars after he signalled a longer pause in rate increases than had been expected.

Dr Bollard told the committee house prices were flat, credit was "going nowhere" and house sales had declined.

Banks would like to be lending more than they were.

"This is a slow and long recovery out of a deep and long recession," he said.

"Private sector caution is echoed in most OECD countries."

Asked whether he thought he would be considering lowering the OCR in the next 12 months, Dr Bollard said the situation would have to move "quite a long way" for that to happen.

"The current OCR is very clearly in our view stimulatory,'' he said.

"There's still quite a bit of pressure on the accelerator, we don't think we're near touching the brake pedal. It would require quite a big change in the international situation, or real concern that the private sector was holding back."

Dr Bollard said he did not think there was going to be a wage/price spiral because expectations were "reasonable".

- NZPA