The Reserve Bank of New Zealand surprised markets and economists by cutting the official cash rate by 25 basis points to 2.25 per cent and forecasting another cut by the middle of the year. Citing a weaker global growth and inflation outlook, the Reserve Bank said it was also concerned about the risk that falling inflation expectations in New Zealand became a self-fulfilling prophecy that drove future inflation even further below its one to three per cent target range. Annual inflation was 0.1 per cent in calendar 2015."Monetary policy will continue to be accommodative," governor Graeme Wheeler said."Further policy easing may be required to ensure that future average inflation settles near the middle of the target range," he said.Financial markets had priced in a 30 per cent chance of a cut, while only two out of 17 economists expected the Reserve Bank to cut on Thursday. Most expected the Reserve Bank to wait until June, or not to cut at all. None of the Big Four bank economists expected a cut.Wheeler gave a speech in early February where he said the bank would not make "mechanistic" cuts to interest rates in response to inflation being below the bank's target range, which was interpreted as making an early rate cut unlikely.Bank economists criticised the governor for the U-turn speech, which they said misled them into thinking a rate cut was unlikely in March."The tone of that speech suggested the RBNZ was a long way from contemplating an OCR cut, and will have contributed to the extent of market surprise today," ASB chief economist Nick Tuffley said.ASB said in a note before the decision: "For the RBNZ to cut the OCR this week would be a U-turn of the tyre-shredding sort that has the police impounding vehicles."Wheeler pointed directly to the New Zealand dollar being five per cent higher on a trade-weighted basis than the RBNZ forecast in December, "and a decline would be appropriate given the weakness in export prices."The New Zealand dollar fell more than 1 US cent to 66.4 US cents after the decision and also fell from 90.5 Australian cents to a low of 88.8 Australian cents.Wheeler pointed to a moderation of house price inflation Auckland in justifying his decision, "but house prices remain at high levels and additional housing supply is needed.""Housing market pressures have been building in some other regions," he added. He said in a later news conference the bank had no plans "at the moment" to introduce further macro-prudential controls to slow lending in the wake of the rate cut.