New Zealand central bank cuts interest rate to 2.5 per cent

Wellington - New Zealand's central bank slashed its benchmark interest rate Thursday by half a per cent to 2.5 per cent, its seventh cut since July. The so-called official cash rate (OCR) was already at its lowest mark since it was introduced in 1999 and Reserve Bank governor Alan Bollard signalled that he could keep it at or below the current level until late 2010. 'We consider it appropriate to provide further policy stimulus to the economy,' he said. 'The OCR could still move modestly lower over the coming quarters.' The bank has cut the rate by 5.75 per cent since July. The annual inflation rate is now 3 per cent and Bollard said developments since he last cut the interest rate in March pointed to lower medium-term inflation than previously projected. He blamed weaker global growth and 'an unwarranted tightening in financial conditions via both higher long-term interest rates and a stronger exchange rate than expected.' Bollard said the world economy deteriorated further than expected in the first quarter of the year. 'While monetary and fiscal policy responses in many countries have been substantial and there are some signs of stabilization in some countries, we still expect the adverse economic forces generated by the crisis to remain dominant throughout 2009. 'The timing and extent of global recovery remain highly uncertain.' Bollard also said that while New Zealand had not experienced the same 'extreme falls in economic activity as seen in a number of our trading partners, it remains weak.' He said that business sentiment was low, investment curtailed and employment reduced. While lower interest rates and government stimulus measures will support the New Zealand economy, 'the scale of the global financial crisis and domestic adjustments underway are such that it is likely to be some time before economic activity returns to robust and healthy levels,' he said.