Wellington

NEW Zealand's central bank governor said on Thursday that it was easily within the margins of error of the bank's forecasts that negative interest rates may be needed when trying to stimulate the economy.

Govenor Adrian Orr said the bank could have to shift to negative interest rates if it found itself needing to stimulate the economy further given global inerest rates were now so low.

"Easily within the downward errors of our forecasts . . . if you're trying to stimulate . . . that means you have negative interest rates," Mr Orr told lawmakers a day after the bank stunned markets by cutting interest rates a steep 50 basis points to 1 per cent, and flagging the risk of taking rates below zero.

Mr Orr said US-China trade tensions have lingered for too long, creating global economic uncertainty.

Positive interest rates at low levels are just as effective as ever, he said, adding the bank was looking at effectiveness globally of quantitative easing "so we are forearmed".

Growth in New Zealand's near US$200 billion economy has been running below-par in recent quarters as international trade frictions slowed global demand in a blow to factory activity and exports.

Business and consumer confidence have also sunk, painting a gloomy outlook.

Mr Orr said dropping the official cash rate to 1 per cent helps the export sector more, due to a lower exchange rate.

But he warned that, in the absence of consumers, businesses or government spending as expected, the bank may have to lower the interest rate further. REUTERS