Reserve Bank Governor Alan Bollard is expected to hack more than 1 per cent off the official cash rate next week in an attempt to bring down interest rates and revive the flagging economy.
Market commentators are picking Dr Bollard will cut up to 150 basis points on Thursday week.
This would bring the rate down to its lowest level in five years.
The move comes amid continuing global economic turmoil and attempts by governments and central banks to help struggling businesses and consumers.
In other developments yesterday;
The BNZ joined other banks in reducing fixed-rate mortgage interest in anticipation of a Reserve Bank cut.
The US government unveiled a $37 billion bailout of the Citigroup bank, which was America's biggest before the start of the credit crunch.
Australia's Reserve Bank was predicted to virtually halve its rate by April next year, from 5.25 per cent to 2.7 per cent - the lowest level since 1960.
Britain is expected to announce today that it is cutting VAT (value-added tax, the equivalent of GST) from 17.5 per cent to 15 per cent.
The consensus among market economists is that the New Zealand cut will be 100 points, but Goldman Sachs JB Were and Deutsche Bank are calling for 150 points.
Goldman Sachs economist Shamubeel Eaqub said the recession in New Zealand would worsen, the global economic backdrop had deteriorated sharply and other central banks had either made big cuts in their rates or were expected to do so.
Deutsche Bank chief economist Darren Gibbs said cutting the cash rate to 5 per cent would still leave it 50 points higher than the low at which it was introduced in 1999, "despite a global environment which is the most dire New Zealand has faced in decades".
And it might still be 75 basis points higher than Australia's rate if the Reserve Bank of Australia cuts as much as the market expects on December 2, he said.
Mr Gibbs and Mr Eaqub both believe New Zealand's rate will fall to 3.5 per cent by the middle of next year, from a peak of 8.25 per cent.
ANZ National Bank chief economist Cameron Bagrie said he had a lot of sympathy with the call for a 150-point cut next week.
But he pointed to the additional easing which had occurred because the currency had fallen a long way even after allowing for commodity prices.
Another factor keeping him in the 100 basis points camp, for now, was the substantial fall in retail mortgage rates last week, which would give the Reserve Bank comfort its rate cuts were working.
BNZ is cutting its standard two year fixed mortgage rate to 7.35 per cent from 8.29 per cent. The five-year rate falls to 7.85 per cent from 8.89 per cent and the seven-year rate to 8.09 per cent from 9.29 per cent.
A new six month rate is 6.99 per cent. The rates are effective from today for new customers.
BNZ has already cut its variable rate. Most banks announced cuts to fixed and variable home loan rates last week.
The director of Massey University's centre for banking studies, David Tripe, said the BNZ drop and the other banks' drops last week indicated banks were returning to moving their rates based on the money market, rather than just the Reserve Bank's official cash rate.
In recent months, money market rates had fallen more quickly than they had for a long time, he said. Much of that move was in anticipation of the expected official cash rate cut next week.
Cutting home loan lending rates in response to the money market had not been seen in New Zealand since early this decade, he said.
"So this is, to some extent, getting back to what ought to happen."