The Reserve Bank of New Zealand Thursday cut its official interest rate by 50 basis points, and signaled that rates would remain at the record low, and possibly go lower, for more than a year.

RBNZ Governor Alan Bollard announced the reduction in the Official Cash Rate (OCR) to 2.50 percent from the previous level of 3.0 percent.

In a statement accompanying the announcement, Bollard said New Zealand's economy remained weak and in need of stimulus, despite not being as bad off as other economies around the world.

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, Bollard said. Business sentiment is low, investment has been curtailed and employment reduced.

Bollard also hinted strongly that the OCR would remain were it is or move lower in the coming months. We expect to keep the OCR at or below the current level through until the latter part of 2010, he said. The OCR could still move modestly lower over the coming quarters.

In his statement, Bollard said global financial markets showed some tentative signs of stabilization, and that major economies were continuing to make progress in resolving their banking system troubles. However, a large amount still needs to be done and sentiment remains fragile. Negative feedback from the global recession could also still adversely affect financial institutions, he said.

Last week, the International Monetary Fund said the worldwide recession will be deeper and the recovery slower than earlier predicted. The IMF projected the global economy to contract by 1.3 percent in 2009.

Immediately after the announcement, the New Zealand Dollar declined by nearly a full cent against the U.S. dollar, but later recovered slightly.

The RBNZ move drew a quick response from Westpac Banking Corp, which said it was reducing its six-month home loan rates by 0.4 percent.

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