The central bank cut the official cash rate to 4.75%, as expected, to its lowest level in 18 months, saying the bigger than usual rate cut was justified by slowing inflation and the slack in the economy.
"The 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 Monetary Policy Committee (MPC) said in a statement on Wednesday.
It said the speed and size of future rate cuts would be determined by economic data.
Within minutes of the Reserve Bank's announcement, two of main banks revealed they are lowering home loan interest rates.
ASB said it would cut its variable home loan rate from 8.39% to 7.89%. Its Orbit rate would drop to 7.99%.
Executive general manager, personal banking, Adam Boyd said 120,000 customers would be affected.
"We do expect this downward OCR trend to continue into 2025 which will provide further relief."
ASB was also cutting savings rates: its on-call interest rate would drop from 2.65% to 2.15%. The Headstart youth account rate would drop from 4.75% to 4.15%.
Earlier in the day, ASB announced cuts of 10 basis points across a number of fixed terms, and a 16bp reduction for the one-year rate.
BNZ said it, too, would pass on the full OCR cut to variable home loans.
General manager, home lending products James Leydon said the OCR cut would be welcome news for many households.
"We are continually assessing our interest rates and looking for opportunities to pass on rate reductions to our customers. Customers will benefit from our latest variable rate change which is effective from tomorrow," Leydon said.
"BNZ will continue to move quickly in response to changes in external factors, including the Official Cash Rate and wholesale interest rates, to ensure we're passing rate changes on to our customers as quickly as possible."
Kiwibank said on Tuesday it was reducing its variable rate by 50bps.
The chief economist at property research firm Corelogic, Kelvin Davidson, said the RBNZ statement had a sense of urgency.
"There's a sense in the Reserve Bank's commentary that they feel a need to act fairly quickly to get monetary policy back towards a more neutral setting (or even stimulatory), rather than the restrictive territory it's been in for quite some time now."
He said he expected mortgage rates to keep falling, which would likely lift confidence in the housing market and help stop the fall in prices.
ASB chief economist Nick Tuffley tentatively expected a further 50 basis point cut in the last meeting of the year in November.
"The outlook appears very data dependent, with a further 50bp not a done deal. The weakness of data through into early next year will influence how long the RBNZ keeps cutting in 50bp moves."
