Commentators were expecting the official cash rate to stay on hold.

The Reserve Bank said inflation is still well below what has historically been an acceptable levels for growth.

The Reserve Bank is mandated to target an inflation mid-point of 2 per cent, but last year it ran at just 0.1 per cent. In the fourth quarter New Zealand experienced deflation of 0.5 per cent.

Governor Graeme Wheeler gave declines in inflation expectations, decreases in the dairy industry, high net immigration and the housing market as reasons for the rate cut.

He said further policy easing may be required to ensure that future average inflation settles near the middle of the target inflation range.

Mr Wheeler said the 70 percent to GDP buildup in corporate debt in China is also worrying.

The bank will closely watch future economic data to determine if further easing is needed.

However an economist warns the cut might encourage New Zealanders to borrow more and worsen New Zealand's debt as a nation.

Cameron Bagrie said high global credit costs mean it's costing us more to borrow overseas and that could flow over to mortgage rates.