By Tracy Withers Nov. 24 (Bloomberg) -- New Zealand’s central bank will cut the benchmark interest rate by 1.5 percentage points in December amid a deepening domestic recession, Goldman Sachs JBWere Ltd. said today. Reserve Bank Governor Alan Bollard will cut the official cash rate to 5 percent at his next review on Dec. 4 because the economy is yet to experience the “peak pain” of the recession, Shamubeel Eaqub, economist at Goldman Sachs JBWere in Auckland, said in an e-mailed report. New Zealand’s $130 billion economy has been in recession since the start of 2008 amid a drought and a plunging housing market. Tightening credit and a deteriorating economic outlook in the world’s largest nations add to signs that exports and tourism will slump, extending the contraction into 2009. “The economy is already in recession, but this is set to broaden and deepen,” said Eaqub, who expects the economy will contract 1 percent next year. “We envisage peak pain of the recession in the first half of 2009, when we expect the bulk of the job losses to take place.” The economies of New Zealand’s trading partners will probably grow 0.5 percent next year, the worst since Goldman began keeping data in 1982. “What is needed is significant monetary policy relief and fiscal stimulus to place a floor on the economy,” said Eaqub, who previously expected a 1 percentage point interest-rate cut. Twelve of 14 economists expect a 1 point reduction, according to a Bloomberg News survey published Nov. 21. To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net.

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