Key Points:

New Zealand's central bank will increase the range of securities it will accept from lenders to help to increase liquidity in the nation's banking system, mirroring similar moves by authorities in Australia and the United States.

The Reserve Bank of New Zealand will temporarily broaden its securities programme and lend against fully secured residential mortgage-backed securities, before they are rated if necessary, Governor Alan Bollard said yesterday.

Central banks worldwide are pushing cash into their banking systems and cutting interest rates to unfreeze credit markets and prevent the slowing global economy stalling.

The US, Europe, Britain, Canada and Sweden each reduced their benchmark borrowing costs by half a percentage point yesterday and Taiwan yesterday cut its main lending rate by 25 basis points.

New Zealand's banks have high-quality assets and have "held up relatively well in the face of the volatility and disruptions that we are seeing internationally", Bollard said. "We are committed to ensuring the ongoing health of the financial system and remain ready to respond as appropriate."

Australia's central bank announced yesterday it would relax restrictions on the use by banks of securities for repurchase agreements, including RMBS and asset-backed commercial paper.

The Federal Reserve said this week it would create a special fund to buy US commercial paper in a bid to unblock the financing tool that drives everyday commerce for American business.

New Zealand's economy is already in its first recession in 10 years after a drought cut farm exports, the housing market slumped and rising fuel and food costs cut retail spending.

The Government this week slashed its economic growth forecast and almost doubled its projected budget deficit. Bollard cut interest rates for the first time in five years in July, and followed that with a bigger-than-expected 50 basis-point reduction to 7.5 per cent last month.

Australia dropped its key rate by 1 percentage point to 6 per cent on Tuesday, the biggest cut since 1992.

"The centre of the financial crisis is in the US and Europe and, while there will be ramifications for our economy, the next review of monetary policy is scheduled on 23 October," Bollard said.