THE Reserve Bank has cut interest rates for the first time in almost seven years, reducing the official cash rate by 25 basis points to 7 per cent.
The widely-tipped reduction, made at the RBA's monthly board meeting today, comes after rates were raised in February and March this year.
But economists say it is unlikely to be followed up with another cut in October.
NAB, Commonwealth Bank, Westpac and ANZ moved to cut variable interest rates after the RBA announcement.
ANZ today has dropped its standard variable mortgage rate by 25 basis points to 9.37 per cent for new and existing customers, effective from September 8, the bank said in a statement.
Prior to the decision, CBA and Westpac had refused to commit to passing on any rate cut.
The average homeowner with a mortgage of $300,000 will save around $54 a month.
In an accompanying statement, RBA governor Glenn Stevens said the outlook for demand and inflation was uncertain, with weakening household demand offset by a rising terms of trade.
Commonwealth Bank of Australia chief economist Michael Blythe said the tone of the RBA statement suggested the central bank was more likely to cut rates again in November, rather than October.
"Right at the moment, it doesn't look like they'll be back-to-back rate cuts," he said.
"You don't get a sense of urgency about what they've said.
"While there's nothing there to stop them cutting again, you don't get the feeling it will be followed up by another move next month.
"It's the fact inflation is uncomfortably high and will remain high for a while.
"The household side is weaker but the business side, with profits and capital spending, is strong."
Mr Stevens also said household demand was likely to remain subdued.
"On balance, however, it is looking more likely that household demand will remain subdued and overall economic growth slow over the period ahead," he said.
"Inflation is likely to remain relatively high in the short term, with the CPI (consumer price index) affected by the high global oil prices in mid year and other increases in raw materials prices."
But the RBA said the outlook for demand and inflation was still uncertain.
It cited Australia's rising terms of trade, the ratio of export to import prices, as a driver of inflation.
"The rise in Australia's terms of trade that has occurred is working in the opposite direction, adding substantially to national income and ability to spend," the RBA said.
"Fixed investment spending by businesses continues to be very strong.
"At the same time, high prices of oil and a range of other commodities have added to global inflationary risks."
Conversely, the RBA said tight financial conditions, high petrol prices and lower asset values were restraining demand.
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