The Reserve Bank has cut the official cash rate by 0.5 per cent to 1 per cent, saying the move is necessary to meet employment and inflation objectives.

“GDP growth has slowed over the past year and growth headwinds are rising. In the absence of additional monetary stimulus, employment and inflation would likely ease relative to our targets,” the Reserve Bank explained in a statement.

Market expectations were for a 25 basis point cut, according to media reports.

But a weakening global economy has eased demand for New Zealand’s goods and services, amid declining international trade more broadly, and central banks are easing monetary policy to support their economies, the Reserve Bank said.

Global long-term interest rates have declined to historically low levels, consistent with low expected inflation and growth rates into the future, the Reserve Bank said.

The bank expects its decision to cut the official cash rate will help to support a pick-up in demand over the coming year, with business investment expected to rise, given low interest rates.

“Our actions today demonstrate our ongoing commitment to ensure inflation increases to the mid-point of the target range, and employment remains around its maximum sustainable level,” the Reserve Bank said.

“Employment is around its maximum sustainable level, while inflation remains within our target range but below the 2 percent mid-point. Recent data recording improved employment and wage growth is welcome.”