RBNZ chief says negative interest rates "within the realms of possibility"

Official cash rate cut slashed by 0.5 percentage points by Reserve Bank to new record low of 1%

"The Aussie (dollar) had been rallying a little bit, up to 67.80, so it was actually looking quite good but no doubt about it was rattled by the aggressiveness of the Reserve Bank of New Zealand's rate cut", Mr Callow told news.com.au. "Recent data recording improved employment and wage growth is welcome", it said.

Hartwich says when that recession eventually comes, the country will have to cut the OCR again, and there won't be much left to cut.

THE Australian dollar has plummeted to its lowest level since early 2009 after the Reserve Bank of New Zealand shocked the market by slashing its official cash rate by 50 basis points.

GDP growth had slowed over the past year and growth headwinds werer rising, it said.

'In the absence of additional monetary stimulus, employment and inflation would likely ease relative to our targets'.

The Reserve Bank released its latest quarterly monetary policy statement on Wednesday.

Speaking in the House this afternoon, Robertson said it was worldwide factors, such as the economies of some of New Zealand's biggest trading partners weakening, that had forced the bank to cut.

The New Zealand dollar tumbled one per cent against the United States dollar to 64.43 USA cents - a 10-month low.

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New Zealand's four major banks immediately lowered home loan and saving rates.

ANZ chief economist Sharon Zollner said the half-a-point cut had the look of a crisis-like response.

The cut is larger than the 0.25 percentage point cut that had been widely expected by analysts and ASB reacted within minutes, announcing its variable home loan rate would fall by 0.5 percentage points to 5.20 per cent on August 14 for new customers, with existing customers getting the benefit a week later.

"Employment is around its maximum sustainable level, while inflation remains within our target range but below the 2 per cent mid-point".

The central bank said its monetary policy committee agreed that a lower cash rate is necessary to continue to meet its employment and inflation objectives.

The central bank abandoned its previous forecast that house price inflation will soon pick up due to lower interest rates. Increased construction activity also contributes to the pick-up in demand.

For the most part, the bank has in the past only shifted its official cash rate (OCR) by 25- basis-point increments.

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