Su-Lin Ong, economist with RBC Capital Markets, said they welcome the cut. "We have been suggesting for some time that the recessionary state of the economy, the u-turn by RBA in recent months, and the sharp deterioration in global growth, argued for the RBNZ to lower rates more quickly and more aggressively," she said.

"Today's move was good insurance against a deepening recession."

The reserve bank marked down their growth forecasts for the economy, anticipating three consecutive quarters of negative growth. Also, inflation forecasts were slightly reduced.

Economists at Moody's Economy.com said they believe New Zealand "is currently in recession and will only emerge from it at the end of the year."

Aside from falling housing prices and a drop in demand that "spooked the RBNZ", the economists said the RBNZ might be responding to Australia's easing interest rate cycle. Australia is New Zealand's biggest export market.

Stephen Toplis, economist with the Bank of New Zealand, said the country depends heavily on global growth and that the bank is reacting to weakening foreign economies. He said the cut was also a reaction to the credit crisis at home.

On the other hand, Toplis said the "front-loading" of bank's planned easing cycle issn't the best approach.

"We still are of the view that they could have achieved the same end objective by easing 25 basis points and talking about further rate cuts," he said. "It creates a credibility issue. Very unusual for a bank to cut 50 basis points and at the next meeting have a pause on the 25 basis point cut already planned. The way that they communicated this move is going to create more uncertainty."

Markets were fully priced in for a 25bp cut, and only 28% priced in for a larger 50bp cut.

Toplis is calling for the bank to cut rates all the way down to 6.0% over the next 8 months.

Ong at RBC is calling for the rate to come down to 6.25% by the second quarter of 2009.

Finally, Moody's economy.com calls for interest rates to hit 6.5% by the end of 2008.

The New Zealand dollar fell sharply on news of the cut.

Tony Morriss, senior currency strategist at ANZ Markets, said that from a currency point of view, the bank has cut rates despite an already weakening New Zealand dollar.

Morriss said it might have created the impression that "they're not too concerned with the low level of the kiwi at the moment even though they said in their report future cuts will depend on currency depreciation."

By Megan Ainscow, This email address is being protected from spam bots, you need Javascript enabled to view it , edited by Stephen Huebl, This email address is being protected from spam bots, you need Javascript enabled to view it

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