The Reserve Bank of Australia today cut the benchmark lending rate by a 100 basis points to 4.25 per cent, with effect from December 3.
"Weighing up the international and domestic developments of recent months, the board judged that a further significant reduction in the cash rate was warranted now, to take monetary policy to an expansionary setting," the central bank said in a statement.
"At its meeting today, the board decided to reduce the cash rate by a further 100 basis points, to 4.25 per cent, effective from December 3," Reserve Bank of Australia Governor Glenn Stevens said.
The cash rate is the interest rate which banks pay or charge to borrow funds from or lend funds to other banks on an overnight unsecured basis. This measure is also known as the interbank overnight rate.
The move by Australia follows rate cuts announced by a host of European countries, Federal Reserve of America and the UK in order to fight the liquidity crunch in the financial markets.
The statement said that recent actions by governments and central banks to stabilise their respective financial systems have begun to take effect. However, financial market sentiment remains fragile, as evidence accumulates of weak economic conditions in the major countries and a significant slowing in many emerging countries.
Stevens said that the Australian economy has been more resilient than other advanced economies, but recent data nonetheless indicate that a significant moderation in demand and activity has been occurring.