"We have acted pre-emptively in reducing the OCR to lessen the economic impact of the earthquake and guard against the risk of this impact becoming especially severe," Reserve Bank governor Alan Bollard said in a statement. He said the February 22 quake caused substantial damage and immense disruption to New Zealand's second largest city, which economists estimate accounts for 15 percent of the national economy. The disaster, which is believed to have killed more than 200 people, shattered business confidence in an economy already hobbled after weaker-than-expected growth in late 2010, he said.

"While it is difficult to know exactly how large or long-lasting these effects will be, it is clear that economic activity, most certainly in Christchurch but also nationwide, will be negatively impacted," Bollard said. The central bank chief later described the cut as a one-off response to an emergency situation that had left New Zealand facing a "quite severe" downturn, saying he did not expect rates to come down further.

"We consider this as a one-off move but if we find very bad news coming through we can always change our minds, it's a very unusual situation, once we're beyond the emergency, we'll revert to normal," he told national radio. New Zealand's farm-reliant economy slowed late last year following another major quake in Christchurch on September 4, combined with persistently flat performances in the retail and housing markets. Bollard said the latest economic blow had dashed any hope of a short-term upturn, noting: "Signs that the economy was beginning to recover early in 2011 have been more than offset by the Christchurch earthquake." He said the economy may contract in the March quarter, a result which would leave the country facing a double-dip recession if figures due out later this month show negative growth in the December quarter. But Bollard said that when the rebuilding programme for Christchurch, estimated at NZ$15 billion ($11 billion), kicked in it could add 2.5 percentage points to economic growth in 2012 and pave the way for interest rates to go up. He said the central bank would also closely monitor inflationary pressures from the quake as costs such as rent and insurance premiums rose in the short term. Previously, the Reserve Bank had kept rates at 3.0 percent since July as New Zealand struggled to shake off the impact of a recession from early-2008 to mid-2009. The rate cut, the first since April 2009, was widely anticipated by both the markets and the New Zealand government, with Prime Minister John Key saying earlier this week it would help the economy. The New Zealand dollar fell 0.6 US cents to 73.31 US cents immediately after the announcement, before recovering slightly to 73.62 US cents. On the stock market, the benchmark NZX 50 rose 0.6 percent in early trade, although the gains were pegged back to 0.12 percent, or 3,418.53, by mid-afternoon.