The New Zealand Reserve Bank did not raise the official cash rate in February, keeping the rate at the record low of 2.5%. The Reserve Bank has indicated that the cash rate should not rise until at least April and is probably likely to stay the same until the middle of 2010.

The official statement from the Reserve Bank’s Governor, Alan Bollard, is very similar to the one released in December, however, it is slightly more positive. While the New Zealand economy is showing some signs of recovery, the Reserve Bank is still being cautious about the possibility of raising the official cash rate just yet. However, the Reserve Bank 2009 statements were indicating the cash rate would remain until the later months in 2010, whereas the statement at the end of January indicated April or the middle of the year would be the time for the official cash rate to increase.

This means that anyone looking to invest in property can take advantage of the lowest interest rates for mortgages on record for at least a few more months. Even then, economists are now predicting a slow increase with increases of 25 points, rather than 50 basis points as was predicted towards the end of 2009.

Reserve Bank Governor, Alan Bollard, said that the recovery of Asian countries and Australia was assisting the global financial recovery, but that some countries were still relying on economic stimulus policies from governments, so caution was required. He said that the New Zealand economy was continuing to recover. “Policy stimulus and improving export earnings have seen a pickup in household spending,” Mr Bollard said.

However, Mr Bollard noted that domestic credit growth was subdued meaning that households were being cautious about getting into too much debt. He said that weak spending from the business sector was an indication that the economy was not improving as rapidly as had been hoped.

Mr Bollard said the New Zealand economy was currently “being assisted by both monetary and fiscal policy support.” He said that as the growth in the economy became self-sustaining, the fiscal policies in place from the government would “reduce the work that monetary policy might otherwise need to do.” In simple terms, raising the cash rate helps to put a brake on credit and spending, but the New Zealand economy does not need this brake on inflationary pressures just yet.

“If the economy continues to recover in line with our December projections, we would expect to begin removing policy stimulus around the middle of 2010,” Mr Bollard said. This means the Reserve Bank is considering the possibility of raising the official cash rate at that time.

Meanwhile, property prices across New Zealand are rising again and, combined with the lower interest rates, many are looking at property as a wise investment. This means that the economy could continue to improve based on real estate sales.

Mr Bollard said that the residential property market had posted weak sales volumes although prices had risen. The property market “was a source of wealth during the housing boom”. Sales prices for properties rose about 1.4 per cent in the past month, even though the number of sales fell below 5,000.

Consumer confidence in New Zealand is on the rise and this will help to continue to stimulate the economy. The signs are positive for an overall economic recovery throughout 2010, but the Reserve Bank still sees the need to continue the monetary policy of retaining the low official cash rate of 2.5 per cent for the next few months.