Special Report:Global Financial Crisis
WELLINGTON, Oct. 23 (Xinhua) -- New Zeland's Reserve Bank does not expect the New Zealand economy to come out of recession soon.
New Zealand's central bank cut the Official Cash Rate by a percentage point to 6.5 percent on Thursday, but warned the size and timing of future cuts will depend on inflation pressures abating.
Reserve Bank governor Alan Bollard said the record cut in the benchmark rate was taken with the turmoil on financial markets andweakening outlook for the global economy in mind.
The official cash rate was previously cut by half a percentage point to 7.5 percent in September.
Bollard expected inflation to fall from 5 percent to within the bank's 1 percent to 3 percent target band by the middle of next year as the effects of the global financial meltdown reach New Zealand, Radio New Zealand reported.
He expected to lower rates further, but said future cuts would depend on developments in the financial markets and how quickly still stubborn domestic inflationary pressures subside.
"We've just got to remember we are doing this from a point of very high historical inflation. Now, everybody expects those numbers to come off, but what we're looking at is any evidence that those get entrenched," he said in a statement.
Bollard said he was comfortable with the dollar's fall in recent weeks and does not see it as a contributor to inflationary pressures given falling oil prices and a weak economy.
The last recession, in 1997-98, lasted nine months. Gross Domestic Product was down 0.2 percent for the April-June quarter and 0.3 percent for the January-March quarter.
Statistics New Zealand announced on Tuesday the annual rate of inflation is 5.1 percent - the highest for 18 years.
Three trading banks dropped their mortgage interest rates on Thursday after the central bank's announcement.
ASB and TSB reduced their fixed-home loan rates and say their floating rates are currently under review.
Kiwi bank also reduced its variable and fixed mortgage rates and said it was reviewing its rates for term deposits.
Westpac said it will drop its variable rates and is reviewing its fixed rates.
Deutsche Bank chief economist Darren Gibbs said the faltering economy means a more aggressive easing of the Official Cash Rate is likely this year.
Wellington Chamber of Commerce chief executive Charles Finny said borrowing is one of the big costs faced by businesses and the sector will keep a close eye on all banks to ensure that they quickly pass on interest rate cuts to customers.
