Increases in the Reserve Bank's official cash rate (OCR) will depend on the impact of global developments have on the New Zealand economy.
But it is unlikely that any interest rates increase will come before June next year.
Kiwibank reacted quickly, cutting all of its fixed mortgage rates after the announcement.
Its one-year rate was cut 0.15% to 5.64% and its two-year rate was cut by 0.41% to 5.89%. The five-year rate was cut 0.41% to 7.19%.
Kiwibank chief executive Paul Brock said the changes reflected an expectation that rates would stay low for the time being.
Reserve Bank governor Alan Bollard yesterday left the OCR unchanged at 2.5%, welcome news for homeowners trying to pay down their debt and the Government, which is encouraging an environment of saving rather than spending as it goes into the election campaign.
At this time in the 2008 electoral cycle, the OCR had been just reduced 1% to 6.5%.
Dr Bollard said domestic activity had continued to expand at only a modest pace, despite relatively strong commodity prices.
More recently, domestic business confidence had fallen back. Further ahead, earthquake repairs and reconstruction in Canterbury were still expected to provide significant impetus for demand.
"There is a real risk that the European sovereign debt crisis could cause a further slowing in global activity, putting downward pressure on New Zealand's commodity prices.
"The difficult international market conditions could also result in increased New Zealand bank funding costs over the coming year."
Given the ongoing global economic and financial risks, it remained prudent to continue to keep the OCR on hold for now, Dr Bollard said.
However, if global developments had only a mild impact on the New Zealand economy, it was less likely that gradually increasing pressure on domestic resources would require future OCR increases, he said.
Finance Minister Bill English told the Otago Daily Times that holding the OCR was not unexpected and it gave people with low interest rates more chances to pay down their debt.
He met with bank managers at Mosgiel yesterday and heard that customers were going in to branches, increasing their mortgage payments to reduce their debt.
"We need lower interest rates for longer to help things come together."
Main points
• OCR stays at 2.5%
• No move likely until mid-2012
• And then several moves
• Nervousness about world situation
