Interest rates are as low as they will go and it's only upwards from here.
That is the message from the Reserve Bank as it held the Official Cash Rate (OCR) steady at 2.5%.
Alan Bollard is still promising to keep the benchmark interest rate low until late next year but he has now withdrawn suggestions he might drop it a little.
"In contrast to current market pricing, we see no urgency to begin withdrawing monetary policy stimulus, and we expect to keep the OCR at the current level until the second half of 2010," Bollard said.
Instead, he has now indicated he might raise it a little earlier than previously thought.
"Activity in New Zealand's trading partners continued to rebound during the September quarter and financial market sentiment has improved further. However, there remain significant vulnerabilities and challenges to be worked through in many economies," Bollard said.
The governor has asked the government to help him out by restraining its spending - something the Finance Minister says it's already doing.
"Some people think we're going too slow. We want to make sure that we make considered decisions that will last a long period of time," says Finance Minister Bill English.
Kiwi workers are hurting as they face no wage increases but bills continue to rise with inflation.
Joshua Moore, a plastics worker on minimum wage, says he is refusing to accept no pay rise this year.
"The cost of living's just gone up, everything's still going up & a no-wage increase is just an insult," says the plastics worker.
But there's no respite from the Reserve Bank and with unemployment still climbing, unions are disappointed.
"We think there was room for the Reserve Bank to reduce the OCR further; we think there's still need for stimulus in the economy," say Bill Rosenberg, CTU economist.
Banks have already started pricing in next year's inevitable OCR hikes and that, along with increased funding costs, has pushed long term mortgage rates back to pre-recession levels.
"Investors are saying that the cash rate can't stay at emergency settings forever, at some stage it's got to be lifted so the market's anticipating that," says Brendan O'Donovan.
And just like the banks, the rest of New Zealand will need to
prepare for the increased living costs next year's rate hikes will
bring.
