The Reserve Bank of Australia has cut interest rates for the second time in as many months, amid concerns about a slowdown in Australia's economy.
The central bank cut its key rate to 3.5% from 3.75% on Tuesday - its lowest level since November 2009 amid the global financial crisis.
Federal Treasurer Wayne Swan said the decision would give Australians confidence that the Reserve Bank had further room to move on rates given the government's plan to return the budget to surplus next year, the ABC reports.
In a statement, Reserve Bank Governor Glenn Stevens said the board noted that households and businesses were still cautious, and this was likely to remain the case despite a slight improvement in the jobs market.
Mr Stevens said inflation was likely to remain low in the short term, although the recent weakening of the Australian dollar meant that growth in domestic prices would have to slow for this to remain the case in the longer term, as prices for imported products rose.
On the global economy, the central bank pointed out that there had been further weakening in Europe and slowing of growth in China.
But the Treasurer said Australians could be confident about the future, given the economy's strong fundamentals and Wayne Swan repeated his call for commercial banks to pass the full amount of the rate cut on to borrowers.