Wellington - New Zealand's central bank slashed its benchmark interest rate Thursday by half a per cent to 3 per cent, its sixth cut since July.

The so-called official cash rate (OCR) was already at its lowest mark since it was introduced in 1999 and Reserve Bank governor Alan Bollard signalled that he would cut it again.

Analysts are tipping that the rate will fall to 2 per cent this year and Bollard said: "We do not expect to see in New Zealand the near-zero policy rates of some countries. New Zealand needs to retain competitiveness in the international capital markets."

Until he started cutting the interest rate nine months ago, Bollard had kept it at 8.25 per cent - one of the highest in the developed world - for a year in a bid to contain inflation, which exceeded the bank's target range of 1 to 3 per cent.

The annual inflation rate is now 3.4 per cent and Bollard said inflation pressure was abating rapidly as falling house prices and increased precautionary saving drove a weakness in spending. Bollard predicted that the New Zealand economy would bottom out in mid-year and gradually pick up.

"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," he said.

Bollard, who cut the interest rate by an unprecedented 1.5 per cent in January, said, "As economic activity troughs, we expect the rapid easing of monetary policy to slow. Any future cuts will be much smaller than observed recently." (dpa)