The Reserve Bank marked April Fool's Day by putting out a warning interest rates were getting too high.

It wasn’t a joke. Perhaps the real joke was interest rates creeping upward in the first place.

That just should not have been happening, according to the textbook. Nor should our currency have been edging upwards.

We are in the middle of a recession. Both those are supposed to be heading downward: the fact they were moving the wrong way was tightening monetary conditions at a time the policymakers are trying to loosen those conditions.

Dr Bollard’s words this morning worked remarkably well.

The cross-rate with the US dropped a cent almost immediately: wholesale interest rates dropped 25 basis points.

Which is all to the good. The response is particularly interesting when you consider all Dr Bollard did was remind the market of what he said in his monetary policy statement on 12 March.

That is, that the economy will remain in recession until the middle of the year and even then will be flat for a while – possibly even another 12 months – after that.

That is no time for tighter monetary conditions.

Several things seem to have driven the recent surge in wholesale and swap rates.

One is there seems to have been a bit of a bow-wave of demand for fixed mortgages, as previous fixed term mortgages rolled off.

Secondly, there has been a growing feeling that perhaps interest rates had bottomed out.

“This has been a flow-driven thing – people seeking to lock in their fixed term rate,” says Bank of New Zealand economist Mark Walton.

“But higher rates just don’t sit with anybody’s idea of where the economy is going over the next six to 12 months.”

The other reason though goes back to that March 12 statement.

The Reserve Bank’s decision to only cut the official cash rate by 0.5% caught some by surprise at the time. The market had priced in a rate cut closer to 0.75%.

“That disappointed the market,” Westpac Bank economist Doug Steel says.

“Then you had the comments about the official cash rate getting to 2.5% when there was a feeling it would go to 2%.

“Then you had a bit of momentum created by the Reserve Bank of Australia pausing its cuts and saying similar things.”

What Dr Bollard essentially did this morning was point to the rest of his March 12 statement – and in particular its downbeat view of the economic outlook.

In other words, he issued a reminder that anyone looking for interest rate rises, with an economy expected to remain flat for at least another 12 months, is an April fool indeed.