RBNZ governor says high level of global uncertainty means NZ conditions could deteriorate further.

The Reserve Bank is likely to raise interest rates earlier than previously indicated.

Governor Alan Bollard this morning announced no change from the present official cash rate of 2.5% but also signalled he expects to begin raising the rate from “around the middle of 2010.”

The previous stance was for rate rises in the second half of the year.

The reasons for the shift are the economy is bottoming out of the recession in better condition than the Reserve Bank – or anyone else for that matter – anticipated.

Coming just one day after Reserve Bank Governor Alan Bollard asked for the food industry to pass on lower commodity prices, Statistics New Zealand’s latest survey shows groceries as the strongest contributor to a 0.8% rise in food prices for November.

The price of grocery foods rose 1.0%, driven up by escalating yoghurt costs of 6.8% and bread price rises of 1.7%.

While vegetables declined in price by 5.4%, fruit increased by 7.9% for the month, to record an overall decline of 0.3% for the category of fruit and vegetables.

A longer but relatively shallow recession is expected by the Reserve Bank.

This, backed with slumps in growth by New Zealand’s trading partners and continued international financial turmoil, is behind the central banks’ record cut of 1.5% to the official cash rate yesterday.

Businesses are scaling back investment, says the Reserve Bank’s monetary policy statement which accompanies the interest rate decision, and that may get worse.

A variety of commentators from various industries have rushed to comment on this morning’s record cut to the Official Cash Rate to an expansionary position for the first time in five years.

JPMorgan economist Helen Kevans is forecasting inflation to fall below the Reserve Bank’s target range of 1-3% before the end of next year, which points to the need for still more assertive policy easing.

GDP will decline for “at least” another three quarters says Ms Kevans, before rebounding from just 0.3% in 2009 to 2.8% in 2010.