Reserve Bank of NZ cuts rates again as inflation falls

It has also issued an updated future track, suggesting at least one and perhaps two OCR cuts to come.

The tracking downgrades a previous forecast to have the OCR sitting at 2.9 per cent by year's end.

Wednesday's cut was not a consensus call, with Governor Christian Hawkesby revealing one committee member dissented, preferring to hold.

With headline inflation back in the target band, at 2.5 per cent, Mr Hawkesby said the five other decision-makers felt conditions were right to continue cutting.

"Core inflation is declining and there is spare productive capacity in the economy," he said.

Spare capacity might be an understatement.

New Zealand is enduring a tough run of low growth, or as was the case last year, a deep six-month recession when the economy shrunk by more than two per cent.

Mr Hawkesby said the economy was "recovering after a period of contraction" and was currently propped up by high commodity prices.

Responding to the environment, as well as shrunken inflation, the RBNZ has cut by 225 basis points in nine months.

Some bankers want it to go further, and quickly, to improve business conditions.

Kiwibank chief economist Jarrod Kerr said domestic weakness and overseas uncertainty put the case for a bigger rate cut now, before landing at 2.5 per cent soon.

"The economy needs stimulus, not restraint," Mr Kerr told Newstalk ZB prior to the decision.

"These tariffs, no matter how much they get dialled back ... it's still a tariff across the world, it's still a negative. It still puts deflationary pressure on the economy.

"We're saying get it into stimulatory territory and lets kickstart the economy into next year."

Arguing for the prudent pathway of the 25 basis point cut, Mr Hawkesby said it was not clear how global heavyweights would respond to the US-led trade war.

"For example, it is possible that China could respond to weaker economic activity with a sizeable fiscal stimulus," he said.

He said the six-person committee was "literally locked in a room for a week and a half to work it through" and the lack of consensus "reflects the degree of uncertainty that we're dealing with at the moment".

Banks, including ANZ and ASB, are still backing the OCR to hit a floor of 2.75 per cent this year.

The RBNZ's new forecasts also predict shallow GDP growth of just 1.8 per cent this year, but in better news, an unemployment rate peaking at just 5.2 per cent.

The lack of surety from the central bank prompted tepid moves from major lenders.

While BNZ cut its floating rate by 25 basis points ahead of the decision, ANZ and Westpac moved after and cut by only 20 and 15 respectively.