The Reserve Bank has cut the official cash rate (OCR) to 1.5 percent - it's lowest-ever rate.
Making the announcement, it said the cut of 25 basis points is necessary due to slowing global growth, along with soft inflation and weakening employment market.
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"Domestic growth slowed from the second half of 2018," the Reserve Bank said in a statement on Wednesday.
"Reduced population growth through lower net immigration, and continuing house price softness in some areas, has tempered the growth in household spending.
"Employment is near its maximum sustainable level. However, the outlook for employment growth is more subdued and capacity pressure is expected to ease slightly in 2019. Consequently, inflationary pressure is projected to rise only slowly."
The rate has remained unchanged since 2016, but the Reserve Bank signalled a possible cut in March, saying "the more likely direction of our next OCR move is down".
"[The Government] thought that a pick-up in the economy would push inflation up but it just hasn't happened - they've run out of patience and they think the economy needs a helping hand," Westpac chief economist Dominick Stephens told Newshub.
The cut has an impact on the exchange rate, which could mean good news for exporters and home buyers.
According to Lesley Harris, a spokesperson for The First Home Buyers Club, the change will take some pressure off home buyers, but it's unlikely to be life-changing.
"Unless we saw a huge drop tomorrow - which no one is predicting - I think it could lessen the load by possibly $10 or $20 a week, as opposed to huge amounts of money."
While exporters and home buyers stand to benefit, the cut to the OCR is likely to put more pressure on motorists. Westpac says a drop in our dollar could push up petrol prices, meaning more pain at the pump.