New Zealand Reserve Bank cuts interest rates to 2.5%

WELLINGTON, April 30 (Xinhua) -- New Zealand's Reserve Bank on Thursday cut the official cash rate (OCR) by half a percentage point to a record low 2.5 percent.

Announcing the decision, Reserve Bank Governor Allan Bollard said he expected the rate to stay at 2.5 percent until the end of next year, but it "could still move modestly lower."

He said the world economy deteriorated further than expected in the first quarter of 2009 and "adverse economic forces" are expected "to remain dominant" throughout 2009.

Bollard said it is likely to be some time before economic activity returns to robust and healthy levels.

Thursday's 50 basis point cut in the OCR was widely expected by economists.

At the start of April, the Reserve Bank had been forced to say longer term interest rates would remain low for a prolonged period, after a rush to refinance home loans at cheap rates caused swap rates to spike.

New Zealand's OCR has been lowered in a series of cuts since July 24, 2008. It was set at 8.25 percent on Sept. 13, 2007. The previous 3 percent rate was set on March 12 2009.

"The timing and extent of global recovery remain highly uncertain," said the central bank governor.

"While the New Zealand economy has not experienced the same extreme falls in economic activity as seen in a number of our trading partners, it remains weak. Business sentiment is low, investment has been curtailed and employment reduced," he said.

The large decline in the OCR during the past year was expected to pass through to more borrowers in coming quarters as existing fixed-rate mortgages came up for re-pricing, Bollard said.

Global financial markets were showing some tentative signs of stabilization but much still needed to be done and sentiment remained fragile, Bollard said.

The New Zealand dollar plunged nearly 1 U.S. cent immediately after the OCR announcement from 57.34 U.S. cents to 56.46 U.S. cents before recovering slightly.