Reserve Bank of New Zealand Governor Alan Bollard said the cut in the official cash rate to a five year low of 5.00 per cent was shaped largely by 'ongoing financial market turmoil and the marked deterioration in the outlook for global growth'.

'Activity in most of our trading partners is now expected to contract or grow only very slowly over the next few quarters,' Mr Bollard said.

'Economic activity in New Zealand will be further constrained as a result, compared with our view in October.'

The latest cut - the largest since the official cash rate was introduced in 1999 - followed a 1.00 percentage point cut at its last review six weeks ago, and the official rate has fallen 3.25 percentage points since July.

New Zealand's economy fell into recession in the first half of this year and most economists do not expect any recovery to start until the second half of next year. -- AFP