Reserve Bank governor Adrian Orr is urging all Kiwis to talk to their banks as interest rates plummet today in response to the coronavirus challenges facing the economy.

In a surprise move earlier today the central bank cut New Zealand's official cash rate (OCR) to 0.25 per cent - an all-time low – will be in place for the next 12 months.

The move is designed to free up Kiwis' spending and stimulate the economy. All the major banks promptly reduced their interest rates.

All the major banks reduced their interest rates after today's announcement.

Orr urged all New Zealanders to talk to their banks – "this is the time to over-communicate".

The bank governor told reporters that these were "unusual" times for the New Zealand economy.

Reserve Bank deputy governor Geoff Bascand said officials expected coronavirus to have a "severe impact" on the economy.

"This is going to spill through to some more unemployment and business failures."

However Bascand was not able to quantify this damage.

NZ's economic position sound

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Orr said the Reserve Bank has been operating on a "heightened level of alert" over the last few weeks.

He confirmed the central bank was looking at some scenarios where the New Zealand economy will go into a recession.

But he noted that New Zealand was in the "best possible" position it could be under the current circumstances.

Orr ruled out imposing a negative official cash rate to combat the coronavirus challenges to the economy.

Instead if the economy needed more stimulus the central bank would be buying government bonds.

There would be a "significant" impact on New Zealand's economy and spending will be subdued for a while.

But Orr talked up New Zealand's economic position, saying this country's institutions were strong and unemployment remained low.

He would not be drawn on how much money he wanted the Government to spend when it announces it spending package tomorrow.

Although the Reserve Bank was ready for negative interest rates, Orr said not all New Zealand banks would be ready to manage such a situation. He said he wanted banks to focus on "more important stuff".

Orr has seen details of the Government's fiscal package but would not go into any detail of what was in it.

Asked about global coordination with other central banks around the world, Orr said the Reserve Bank acted independently.

"But we are all singing off the same song sheet."

OCR cut to all-time low earlier today

The governor's comments follow his surprise decision earlier today to cut the official cash rate (OCR) by 0.75 per cent.

The cut, which brings New Zealand's OCR to 0.25 per cent - an all-time low – will be in place for the next 12 months.

Cutting the cash rate will lead to banks reducing mortgage rates, freeing up the public's spending to boost the economy.

Orr was not scheduled to review the OCR until March 25, but the central bank has been under mounting pressure to act as the warnings about the impact of Covid-19 have become more severe.

It a move not seen by New Zealand's central back since the days of the global financial crisis in 2008/09.

"Since the outbreak of the virus, global trade, travel, and business and consumer spending have been curtailed significantly," Orr said in a statement.

"Increasingly, governments internationally have imposed a variety of restraints on people movement within and across national borders in order to mitigate the virus' transmission."

The move comes a day before the Government plans to unveil a significant spending package to help bolster the economy through the coming downturn.

In a statement released soon after the Reserve Bank's move, Finance Minister Grant Robertson said the OCR cut was "a welcome support to the economy".

He said the Government has been working closely with the Reserve Bank in a co-ordinated response to the economic impacts caused by Covid-19.

"The Government's significant, multi-billion dollar fiscal response will be announced on Tuesday," he said.

Yesterday, Jacinda Ardern said the spending package would be the "most significant" she would announce during her tenure as Prime Minister.

In his statement, Robertson highlighted the strength of the Government's books, and its low levels of debt.

"Government surpluses and low debt put us in good shape to invest in the economy to support businesses and workers, and the Reserve Bank also had more room than many other countries around the world to cut interest rates."

New Zealand bond yields have never been lower than they are now – meaning it is very cheap for the Government to borrow money.