Reserve Bank of New Zealand (RBNZ) governor Adrian Orr took the OCR to 4.75 per cent on Wednesday, acknowledging an economy in dire straits.
"Economic activity in New Zealand is subdued, in part due to restrictive monetary policy," he said.
"Business investment and consumer spending have been weak, and employment conditions continue to soften.
"The New Zealand economy is now in a position of excess capacity, encouraging price- and wage-setting to adjust to a low-inflation economy.
"The (RBNZ's monetary policy) committee agreed that it is appropriate to cut the OCR by 50 basis points to achieve and maintain low and stable inflation, while seeking to avoid unnecessary instability in output, employment, interest rates, and the exchange rate."
The decision was largely priced in by markets and tipped by most bank economists, with Kiwibank taking the step of slashing its floating rate a day before the decision.
The OCR was priced at 5.5 per cent for 18 months until August, when the RBNZ began what is expected to be a series of cuts, lowering by 25bps.
Kiwi banks say another cut will come at the year-ending November meeting.
"We continue to expect another 50bp cut in November, then moves over 2025 will be even more conditional on the state of the economy," ASB chief economist Nick Tuffley said.
Like much of the world, NZ has suffered through high inflation following the COVID-19 pandemic.
The monetary policy response has crashed the Kiwi economy, which has endured a GDP per capita decline greater than the global financial crisis.
However, Mr Orr believes the inflation genie is back in the bottle.
Headline consumers price index (CPI) was last measured at 3.3 per cent in July, just north of theRBNZ's target band of one to three per cent.
Mr Orr said he believed the CPI had already lowered beyond that 3.3 per cent figure, ahead of fresh figures being released next week.
Finance Minister Nicola Willis said the RBNZ's cut would "provide much-needed relief for households and businesses".
"Double-whammy, double-happy," she said.
"New Zealanders have been doing it tough over the last few years with the economy in recession, high interest rates and sharply rising prices.
"We are confident that brighter days are ahead."
Still, NZ's economy remains in the doldrums, posting a -0.2 per cent fall in the last quarter, with expectations of another technical recession confirmed in the next release of GDP data.
Saxo Asia Pacific's Junvum Kim noted the Kiwi dollar dipped as a result of the OCR move.
"This dovish tone, suggesting concerns about an anticipated technical recession, is pushing NZD/USD below 0.61 - its lowest level since mid-August," he said.
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