Reserve Bank governor Alan Bollard says everyone should be thinking about how they can influence a recovery in New Zealand's economy.
Bollard, speaking to a Wellington business audience, said signs of economic activity both in New Zealand's economy and overseas are encouraging but recovery is likely to be slow and drawn out, and possibly erratic.
"To many households it may not feel like a recovery at all, with lower employment, house prices and wage increases into next year," he said.
He says households in particular would take a long time to adjust their balance sheets as asset prices fall and cheap credit becomes less available.
"While they have largely stopped building up debt, most people have less wealth than before the recession started," he says.
Bollard reinforced the need for an export and investment-led recovery, although this is currently being impacted by a higher-than-desired Kiwi dollar trading at around 62 US cents.
"Some recent financial market developments, especially the recent upward pressure on the New Zealand dollar, are working against this rebalancing. If markets are buying the New Zealand dollar on the expectation of a strong recovery they may end up being disappointed," he said.
He said household and government consumption need to be more restrained so as to boost savings and reduce debt.
Interest rates
Bollard re-iterated his disappointment over the failure of banks failing to pass on cuts in the official cash rate to short term lending rates.
The Reserve Bank last week decided to keep the OCR at its historic low of 2.5% set in April and Bollard has repeatedly urged banks to pass on cuts.
Banks, on the other hand, say the high cost of offshore funding needed to meet borrowing needs is pushing up interest rates.
Bollard also expressed the need for a sustainable recovery.
"A premature rebound in household spending could jeopardise the next expansion.
"There is a risk people see the current stabilising of the housing market as a sign of another house price boom and a reason to borrow and spend up large again," he said.
Bollard believes investors who rely on this could get
hurt.
