Treasurer Joe Hockey believes even lower interest rates are on their way.
His prediction the Reserve Bank has room to move follows its decision on Tuesday cut the cash rate by 25 basis points to an all time low of 2.25 per cent.
Homeowners can expect a reduction of around $45 per month on an average $300,000 standard variable mortgage as long as the cut is passed on in full by the banks.
Mr Hockey described the cut as good news for families, business, the economy and jobs.
"The Reserve Bank does have more room to move," he told reporters in Canberra.
The government will no doubt be hoping the first rate cut in 18 months will take the spotlight off Prime Minister Tony Abbott's leadership woes, at least in the short term.
However, RBA Governor Glenn Stevens has warned economic growth will be below trend for "somewhat longer" and the unemployment rate will peak higher than previously expected.
"The board judged that, on balance, a further reduction in the cash rate was appropriate," he said in a statement.
Mr Stevens, who briefed a federal cabinet meeting on Tuesday for the first time in 10 years, expects inflation will remain consistent with the RBA's two to three per cent target band over the next one to two years.
The most recent consumer price index is at its lowest pace for several years due to a sharp decline in oil prices and the impact on energy prices from the removal of the carbon tax.
Mr Hockey said the rate cut coincides with the drop in petrol prices which are providing the typical family with a monthly saving of $80 from six months ago.
However, cheap petrol and the talk of an interest rate cut in the run-up to the RBA's first board meeting of 2015 failed to lift consumer confidence.
The ANZ-Roy Morgan confidence gauge fell by a further 0.7 per cent in the past week.
Shadow treasurer Chris Bowen said leadership speculation and destabilisation in the government is damaging the economy through lower confidence.
That was despite Mr Abbott's promise of an adrenaline charge for consumer confidence on the election of a coalition government, he said.
Australian Chamber of Commerce and Industry boss Kate Carnell said the RBA's decision recognised government policy uncertainty was making planning difficult.
West Australian premier Colin Barnett weighed into the federal leadership debate, blaming the treasurer for the government's instability.
"I don't think the treasurer's done a great job and that last budget was flawed," he said.
As a result, "the leader ends up wearing it".
Mr Hockey declined to respond to "comments like that".
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