The official cash rate is now at 5%, but Bank of New Zealand economist Stephen Toplis said he was looking for a further 0.5% cut in January, leading to an OCR low of 3.5% to 4% by June next year.
New Zealand Manufacturers and Exporters Association chief executive John Walley said another rate cut of 1% in January was likely to be needed to support the "real economy".
"Given our trading partners are likely to decline further next year, it is important to get our interest rates into an expansionary setting so that exporters can take advantage of overseas markets while they are still there.
"We called for a 2% cut this time, which could have delivered more stability until the end of the first quarter of 2009. Now, another cut will be necessary in January."
Interest rate cuts from New Zealand's trading partners meant this country still had one of the highest cash rates in the developed world, he said.
Other countries had demonstrated they were more concerned about their economies than they were about inflation.
"It's a shame that the Reserve Bank Act had not allowed Dr Bollard to act sooner to stimulate the economy.
We have already suffered two quarters in recession and only now are we moving towards a position where an export-led recovery can occur."
Dr Bollard said in his monetary policy statement ongoing financial market turmoil and the marked deterioration in the outlook for global growth had played a large role in shaping yesterday's decision.
Activity in most of New Zealand's trading partners was now expected to contract or grow only very slowly during the next few quarters.
"Economic activity in New Zealand will be further constrained as a result, compared with our view in October.
Inflation is abating here and overseas as a consequence of these developments."
The Reserve Bank had more confidence that annual inflation would return comfortably inside the target band of 1% to 3% in the first half of next year and remain there in the medium-term.
However, the central bank still had concerns that domestically generated inflation - particularly local body rates and electricity prices - was remaining stubbornly high.
The annual inflation rate hit an 18-year high of 5.1% in the third quarter on higher food and oil prices but was now expected to reach 1.6% by the third quarter of 2009.
Dr Bollard said he expected financial institutions to play their part in the economic adjustment process by passing on lower wholesale interest rates to their customers.
ASB Bank, Kiwibank, Westpac, BNZ and SBS Bank (formerly the Southland Building Society) responded by reducing rates.
ASB has cut its variable rate from 8.7% to 7.95%, while SBS has cut from 9.15% to 7.2%.
Kiwibank yesterday cut its floating rate from 7.95% to 7.45%, its six month rate from 7.49% to 6.99%, its one-year fixed term 6.99% to 6.49% and its two-year rate from 7.59% to 7.19%.
Westpac has left its floating rate unchanged, but cut its fixed terms.
