Bollard slashes rates and says they will stay low

Inflation is now likely to be lower than previously expected over the medium term and weaker global growth and "an unwarranted tightening in financial conditions" justify a further big cut in interest rates, Bollard says.

He cites the rise in long-term interest rates and a stronger-than-expected New Zealand dollar in cutting his official cash rate (OCR) from 3% to 2.5%, in line with most economists' expectations, and down from 8.25% in July last year.

Today's statement is in sharp contrast to his declaration late last year that the recession was over. Bollard had previously indicated 2.5% would probably be the OCR's low.

One analyst says today's statement "twisted the knife" in indicating rates won't be rising any time soon.