Wellington - The head of New Zealand's central bank warned financial institutions and businesses Wednesday against talking the country into recession, saying the economy remained fundamentally sound and creditworthy.

Reserve Bank governor Alan Bollard said New Zealand had experienced a record period of uninterrupted growth that left the economy stretched, but urged banks and businesses not to slow down too much in face of a downturn.

"Because we have been so strong so long, some people have forgotten what a slower economy means," he told a chamber of commerce meeting in Marlborough.

"Banks, businesses and households alike need to recognise the new external environment and adopt a cautious approach
- but don't go into hibernation, the underlying economy remains robust," he said.

Bollard was speaking after the independent New Zealand Institute of Economic Research reported a survey showing business confidence was at its lowest level in 33 years and trading activity was at its lowest since the 1998 recession.

Bollard noted that monetary policy had been relatively tight for some time, with the bank's benchmark interest rate at 8.25 per cent. "This leaves us in a better position than some Northern Hemisphere countries that may still have to confront future inflationary pressures," he said.

"The bank expects the New Zealand economy to see a markedly weaker growth profile this year because the housing market is now softening as it needs to, the continued high New Zealand dollar is constraining export receipts, and dry weather this summer has hit dairy and meat volumes," he said.

Analysts do not expect the bank to change the interest rate at its next scheduled review of monetary policy on April 24. (dpa)