* N.Zealand c.bank cuts key rate by 50 bps to record low
* RBNZ to keep rate at or below present level till late 2010
* C.bank says its cash rate could still move modestly lower
* NZ rates below Australian rates first time since 2003
* NZ dollar, debt tumbles. Aussie hits 7-wk high against kiwi (Adds Australian dollar rise, impact on current account)
By Mantik Kusjanto
WELLINGTON, April 30 (Reuters) - New Zealand's central bank cut interest rates to a record low on Thursday and pledged to keep them low for more than a year to fight the country's worst ever recession, scotching talk the easing cycle was near an end.
The Reserve Bank of New Zealand cut its official cash rate
(OCR) by half a percentage point to 2.5 percent, sending the
New Zealand dollar
The yield on June 90-day bank bills
"The OCR could still move modestly lower over the coming quarters," Governor Alan Bollard said.
Taking its cue from other central banks, such as the Bank of Canada, Bollard said the RBNZ will keep the cash rate "at or below the current level through until the latter part of 2010" to help the economy revive from the global economic downturn.
The comment was seen by analysts as a warning to financial markets not to price in higher rates too soon.
While New Zealand is deep in recession, markets had started to expect higher rates for next year. That forced up borrowing costs, threatening to impede any economic recovery.
"(It) is designed to keep the entire yield curve down and, more importantly, to bring the currency down," said ANZ-National Bank senior markets economist Khoon Goh.
Swap rates
At the end of March, lending rates had spiked more than a percentage point higher as investors started to price in an end to the easing cycle and a move to higher rates. The New Zealand dollar rose through March and in early April.
Still, markets had assumed Bollard would be reluctant to push rates much lower out of concern it would discourage foreign investment on which New Zealand relies to plug its current account gap. Economists said the lower rate should not affect the country's ability to fund its current account deficit, which is close to 9 percent of GDP and had prompted warnings from ratings agencies. [ID:nWEL368620]
"Investors are more concerned with longer-term rates than with the cash rate, and if they demand a premium for lending to NZ, the market will give them one," said Westpac Chief Economist Brendan O'Donovan.
The cut took New Zealand's rates below Australia's key rate for the first time since December 2003.
The 50 basis point gap in Australia's favour saw investors
push the Australian dollar to a seven-week high against the New
Zealand dollar
The Reserve Bank of Australia holds its next policy meeting on Tuesday and is widely expected to hold rates at 3 percent.
RATES STILL LOWER
The RBNZ cut was the seventh since last July and took the cash rate to its lowest level since it was instituted in March 1999. It brought total cuts since last July to 575 basis points.
"That's a clear message to the market that people were pricing in hikes too early. It's an attempt to influence the rates that matter most like mortgage rates, to talk them down," said RBC Capital Markets senior economist Su-Lin Ong.
Analysts also now expect the central bank to cut rates again in its efforts to revive the $100 billion economy, which has contracted for four consecutive quarters.
A Reuters poll after Thursday's move showed 11 out of 15 economists expect another 25 basis point cut in June. Three forecast no change and one predicted a 50 basis point cut.
After the rate move, Westpac lowered its six-month fixed housing loan rate by 0.4 percentage points to 5.39 percent.
New Zealand has been in recession since the beginning of 2008, the longest contraction in more than 30 years, and the downturn is expected to last through much of this year.
Bollard said the bank was still expecting some signs of growth later in the year, and he reiterated that it would not be cutting rates to near zero as some other central banks have done.
New Zealand's cash rate compares with official rates of 0.1 percent in Japan, 1.25 percent in the euro zone, and 0-0.25 percent in the United States. LINKS > Analysts' comments on NZ rate cut.............[ID:nWEL391513] > Central bank policy statement..[ID:nWEL000891] > New Zealand dollar steady after fall..........[ID:nWEL365652] > Australian dollar holds hefty gains...........[ID:nSYD364029] (Additional reporting by Gyles Beckford and Adrian Bathgate; Editing by Jan Dahinten)