"In explicitly promising to hold the OCR at or below current levels until the second half of 2010, the Reserve Bank will contain longer-term interest rate expectations and prevent an unnecessary tightening in monetary conditions before the economic recovery has found its feet.
"In addition, signalling that further rate cuts are possible will mitigate the rush of borrowers looking to fix rates and prevent a repeat of late March, early April," he said.
The Reserve Bank cut its official cash rate by 0.5%, taking it to 2.5%, a move expected by about half of the New Zealand economists.
Reserve Bank governor Alan Bollard said he expected to see the large decline in the OCR over the past year to pass through to more borrowers over coming quarters as existing fixed-rated mortgages come up for repricing.
"This, together with the stimulus from fiscal policy, will act to support the New Zealand economy and eventually see activity trough and pick up thereafter."
However, the scale of the global financial crisis and domestic adjustments under way were such that it was likely to be some time before economic activity returned to robust and healthy levels.
The central bank considered it appropriate to provide further policy stimulus to the economy, Dr Bollard said.
"We expect to keep the OCR at or below the current level through until the latter part of 2010.
"The OCR could still move modestly lower over the coming quarters," he said.
ABN Amro Craigs broker Chris Timms said the markets reacted positively to the cut, with the NZX-50 index up 2% and strong movements across a wide range of shares.
Tourism shares, such as Air New Zealand, Auckland International Airport and Tourism Holdings Ltd were the exception, but they were reacting to reports of swine flu spreading.
The Australian markets were also up about 2% but their rise followed news from the United States Federal Reserve, which held its interest rates and noted an improvement in the economy.
The New Zealand dollar was down against both the Australian and US economies.
With interest rates likely to stay low until late next year, investors were expected to take more interest in shares, Mr Timms said.
New Zealand Manufacturers and Exporters Association chief executive John Walley said yesterday's cut could have been larger.
Comments from Dr Bollard recognised how fragile things were at present.
"It's a shame that we didn't see this cut last month, as the appreciation in the dollar and the rise in long-term interest rates since the last monetary policy announcement has been something of a setback," Mr Walley said
At a glance
• OCR 2.5%
• More cuts expected
• No rush to fix mortgage rates
• Markets rise, dollar falls
