The cut, in line with economists' expectations, comes with the New Zealand economy in recession against a backdrop of the world's biggest financial crisis since the 1930s.
Kiwibank and ASB have been the first retail banks to follow suit and cut home mortgage rates.
Kiwibank dropped its variable home loan rate by one percentage point.
Chief executive Sam Knowles said the new variable rate would be 8.70 percent per annum with immediate effect for new customers and in two weeks for existing customers.
ASB Bank was the first of the major banks to move, reducing its fixed lending rates, but keeping its variable rate under review.
Among its new rates are a 6 month fixed rate of 7.99 percent, compared with its website-advertised rate of 9.25 percent, and a 12 month rate of 8.1 percent, compared with 8.95 percent on the website.
The rates would take effect from tomorrow, the bank said.
Meanwhile, Reserve Bank governor Alan Bollard said if inflation fell as expected, he was likely to cut interest rates further. Economists are now picking the OCR to fall to as low as 4.5 percent by next March.