His financial stability report shows the financial system has shifted to "historically 'normal' levels of risk and away from elevated levels that prevailed at the peak of the global financial crisis".
But the global market remains fragile, with confidence dented in recent weeks by European sovereign debt concerns, weighing heavily on financial markets in recent weeks, Dr Bollard said.
"European authorities and the IMF have recently announced initiatives to support sovereign debt markets and to begin dealing with the underlying problems. But there is clearly a risk of further turbulence if adequate progress is not made.
"As an external debtor country, New Zealand could be vulnerable to any renewed deterioration in global debt markets. At the same time, the process of fiscal consolidation could dampen the global recovery, although our major trading partners in Asia and Australia should be less directly affected."
Dr Bollard said a rebalancing of the economy towards higher national savings, and less reliance on external financing, remains highly desirable to stabilise New Zealand's net external indebtedness at or near current levels, even if it means growth rates will be relatively moderate in coming years.
"Rebalancing will depend on whether households change their behaviour away from debt-fulled consumption towards higher personal savings over the medium-term.
"To date households have increased savings, and household credit growth has remained modest as domestic activity has increased. Firms are taking a cautious approach to their balance sheets, preferring to repay debt and reduce gearing.
"However, a return to moderate business credit growth is likely to be necessary over the coming year to support gradual recovery in business investment activity."
Dr Bollard said New Zealand's banking system remained relatively healthy and well placed to support the domestic economy recovery, strengthened by the resilience of the Australian parents of the major banks.
"Banks have the capacity to meet an increase in demand for credit and doing so will be important to sustain the economic recovery. However, at the margin some businesses may continue to find credit expensive or difficult to obtain, particularly those involved in higher risk activities."
