Wellington  - New Zealand's central bank slashed its benchmark interest rate Thursday by 1.5 per cent to 3.5 per cent, the lowest figure since the so-called official cash rate (OCR) was introduced in 1999.

It was the fifth time Reserve Bank governor Alan Bollard has cut the rate since July after keeping it at 8.25 per cent - one of the highest rates in the developed world - for 12 months in a bid to contain inflation.

Inflation fell to 3.4 per cent last year and Bollard said the global economy was now in recession. News coming from New Zealand's trading partners was very negative.

While considerable policy stimulus put in place around the world was expected to help restore growth eventually, "there remains huge uncertainty about the timing and strength of a recovery," he said in a scheduled review of monetary policy.

Bollard said that inflation pressures were abating and the bank was confident that annual inflation would be comfortably inside its target band of 1 to 3 per cent over the medium term.

"Given this backdrop it is appropriate to take the OCR to a more stimulatory position and to deliver this reduction quickly," he said.

"Lower interest rates will have a positive impact on growth, alongside a lower exchange rate and fiscal stimulus, provided firms and households do not unnecessarily contract their spending."

Bollard called on trading banks to play their part in the economic adjustment process by passing on lower wholesale interest rates to their customers. (dpa)