12 Oct 2010

Recovery slow and fragile, says Bollard

1:35 pm on 12 October 2010

The Reserve Bank says interest rates are unlikely to rise as high as in previous recoveries, because consumers and businesses are more cautious, banks are lending less and inflation poses a concern.

In the central bank's annual report, governor Alan Bollard says New Zealanders have changed their behaviour as a result of the recession.

Dr Bollard says households and firms are now more focused on reducing debt and saving more, while people are reluctant to re-enter the muted housing market.

That has resulted in a slower return to growth, with the recovery proving slow and fragile, he says.

However, Dr Bollard is encouraged by the shift away from consumption towards an export-led recovery, which he believes the economy needs to focus on.

Meanwhile, the surging New Zealand dollar hit its foreign exchange returns last year, with accounts showing a $111 million loss for the year to June.

The Reserve Bank will pay the Government a dividend of $335 million as it made some profits from selling foreign exchange during the year when the New Zealand dollar was cheaper.