The Reserve Bank of Australia has cut the cash rate by a quarter of a percentage point to a record low of 2.25 per cent, in the first cut since August 2013.
RBA governor Glenn Stevens says the economy is growing at a below trend pace and is likely to remain so for quite a while longer, while unemployment will peak a little higher than previously expected.
"The board judged that, on balance, a further reduction in the cash rate was appropriate," he said.
"Financial conditions are very accommodative globally, with long-term borrowing rates for several major sovereigns reaching new all-time lows over recent months".
"This action is expected to add some further support to demand, so as to foster sustainable growth and inflation outcomes consistent with the target, he said. "
Room for another cut this year: economist
"It seems they have revised their growth forecast down and their unemployment rate peak higher, and they've seen room for cutting rates which they've done today," said Senior NAB Economist David De Garis.
"So there has been some change over the past three or four months overall, even though the recent data has been okay they think they can afford to cut rates to help to rebalance the economy.
"There'll be room for another cut this year, how soon remains to be seen. We've been thinking two (cuts) and it's hard to steer away from that at this point, " Mr De Garis said.
Pressure for an easing has mounted in recent weeks as prices for many of Australia's commodity exports continued to slide, crimping company profits and national income.
The outlook for inflation had also moderated as petrol prices plunged and wage growth stayed stuck at decade lows. Core inflation is now seen near the floor of the RBA's 2-3 per cent target band for much of this year.
And a rush by other central banks, and particularly the European Central Bank, to ease their policies meant the RBA needed to follow suit if only to stop its currency from rising and so tighten conditions.
What you'll save on your mortgage if banks follow RBA
Repayments on a $300,000 mortgage will drop by $45 a month on average if retail banks fully pass on Tuesday's 25-basis-point cut in the cash rate by the Reserve Bank.
If your mortgage is:
* $100,000 - $626.09 - $15.16 cut
* $150,000 - $939.13 - $22.74 cut
* $200,000 - $1252.18 - $30.32 cut
* $250,000 - $1565.22 - $37.90 cut
* $300,000 - $1878.27 - $45.48 cut
* $350,000 - $2191.31 - $53.06 cut
* $400,000 - $2504.35 - $60.64 cut
* $450,000 - $2817.40 - $68.22 cut
* $500,000 - $3130.44 - $75.80 cut
This assumes 25-year standard variable rate loan at an average new interest rate of 5.7 per cent.
- With AAP, Reuters
