Adrian Orr, Governor of the Reserve Bank of New Zealand Photo: RNZ / Claire Eastham-Farrelly
Governor Adrian Orr said the cut was necessary to support businesses and employment.
"The negative economic implications of the Covid-19 virus continue to rise warranting further monetary stimulus."
"Since the outbreak of the virus, global trade, travel, and business and consumer spending have been curtailed significantly," he said.
The last time the RBNZ made such a big cut was in March 2011 after the Canterbury earthquake.
Central banks around the world have been cutting rates to counter the economic impact of the virus.
Orr said the monetary policy committee had decided the OCR would stay at the new low for at least 12 months, but it was reluctant to cut further.
"The Committee also agreed that should further stimulus be required, a Large-Scale Asset Purchase programme of New Zealand government bonds would be preferable to further OCR reductions."
Last week, the bank outlined a range of unconventional monetary policy tools such as negative interest rates, special loans to banks, and buying bonds to put money into the economy.
The rate cut will complement the government's planned economic package due on Tuesday, which is expected to detail specific assistance to businesses including wage subsidies, and cash grants.
The RBNZ has been at pains to say that monetary policy can have only a limited effect to counter the effect of the virus, but lower interest rates will reduce borrowing costs and encourage banks to lend to businesses, and ensure liquidity in the financial system.
The New Zealand dollar fell to a near-11 year low of 59.7 US cents.
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