The Reserve Bank of Australia on Tuesday cut interest rates by 1 per cent to 4.25 per cent in hopes of lifting consumer confidence and helping the economy skirt a recession, dpa reported.
It was the bank's fourth monthly cut in the rate it charges banks for borrowing and brings it to a six-year low.
The further easing of monetary policy came on the heels of figures showing inflation falling sharply towards the central bank's upper-range target of 3 per cent.
The bank thinks recession is now more of a threat than inflation. It has slashed the cash rate by 2.75 per cent over four consecutive months.
High Street banks and finance houses are unlikely to pass on the full rate cut because their costs of borrowing have risen in line with the international credit crunch.
The government has warned hard-pressed mortgage holders not to hope for the whole 100 basis points.