The Reserve Bank had reduced the Official Cash Rate (OCR) by 50 basis points to 3%.

The OCR has now been reduced 525 basis points in little more than six months, however it is expected this latest cut represents a tailing off in size and scope of cuts.

Alan Bollard, governor of the Reserve Bank, said: "The world economy deteriorated very rapidly late last year, amid ongoing losses and extreme volatility in international financial markets. While monetary and fiscal policy responses in many countries have been substantial 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.

"In New Zealand, the impact of difficult trading conditions is showing through clearly in reduced export revenues, weak business sentiment, and sharply curtailed investment and employment. Further house price falls and increased precautionary saving by households are driving a weakness in spending. Inflation pressure is abating rapidly as a result.

He added that in addition to the substantial change in monetary policy settings, there had been a large amount of stimulus from fiscal policy which, together with the sizeable exchange rate depreciation, would act to support the New Zealand economy. "We expect to see activity troughing in the middle of this year and then gradually picking up thereafter. However, the scale of the global financial crisis is such that there is great uncertainty about future economic developments and there is a risk that the recovery may occur later and be more protracted than we anticipate."