Britain, South Korea and New Zealand left interest rates at record lows on Thursday, with Canada expected to follow suit, but in Asia at least there were signs that thoughts are turning to tighter policy.

The Bank of England left interest rates at a record low of 0.5 percent for the sixth month running and said it would keep its 175 billion pound asset buying programme, designed to pump money into the economy, in place.

In contrast, Bank of Korea kept interest rates at a 2.0 percent low set seven months ago but sent a strong signal it would lift them if house prices climb much more, even if it means moving before other major central banks.

Analysts said a tightening could come as soon as November.

Governor Lee Seong-tae said: There's no problem at the moment with the consumer prices and international balance of payments but I am worried about the housing sector.

New Zealand's central bank was less hawkish, leaving its key interest rate unchanged at a record low 2.5 percent, but dropped a previous reference to rates maybe moving lower.

RBNZ Governor Alan Bollard told Reuters Television financial markets were getting too far ahead of themselves by pricing in rate rises from early next year and said he expected no move until the latter part of 2010.

The markets, however, are still discounting a rise by March.

In terms of when the markets expect the first hike, it's still around March. That hasn't changed despite what the RBNZ has said, said ANZ-National senior markets economist Khoon Goh.

Australia, which never entered recession, is expected to up rates even sooner, maybe before the year is out.

Debate is heating up about when and how to reverse the huge monetary and fiscal shots in the arm given to the world economy since the collapse of U.S. bank Lehman Brothers a year ago.

Finance ministers from the G20 economies agreed last weekend that now was no time to reverse the trillions of dollars of stimulus pumped into the world economy.

Even China, a key engine of world growth in recent years, is not ready to turn the taps off yet.

Premier Wen Jiabao said on Thursday China would unswervingly apply its policy mix of massive government spending and loose money because its recovery remains fragile.

But as signs of economic life become more firmly entrenched in much of the world, the reckoning hour is approaching and with it the risk that withdrawing stimulus could stop fragile economic growth in its tracks.


With nations recovering at different rates, reversal of monetary policy will not be uniform. Those hardest hit, like Britain and the United States, are likely to lag.

Different signs of stabilisation have become apparent recently in the euro zone as well as in the rest of the world, European Central Bank Governing Council member Yves Mersch said in a report issued on Thursday by Luxembourg's central bank.

Britain's central bank has stood out from the crowd, actually upping its bond-buying programme to 175 billion pounds last month and three on its rate-setting committee, including Governor Mervyn King, wanted an even bigger increase.

On Thursday, it said it would take two more months to exhaust that money and it would keep the scale of the programme under review -- leaving the option open for yet more stimulus.

Reuters polls predict first rate rises in the United States, euro zone and Britain not before the third quarter of 2010.

Britain did not exit recession, as France and Germany did, in the second quarter but economic data has improved and could yet hasten a rate rise here too.

If the economic data continues to improve, we could see the first interest rate hike in the first quarter of next year, said Philip Shaw, chief economist at Investec.

The European Central Bank left rates at 1.0 percent last week and, echoing the G20 ministers, said it was too early to withdraw support from economies creeping out of recession.

In the United States, where a housing market collapse and banks' excesses triggered the global crisis, the Federal Reserve flagged tentative signs of improvement in a report on Wednesday.

Half of the Federal Reserve's 12 districts saw evidence the economy had picked up by the end of August, although job markets remained weak and retail sales were flat.

(Editing by Toby Chopra)