The Reserve Bank of Australia slashed its Official Cash Rate by a further 100 basis points on Tuesday to 3.25% - its lowest level in 45 years.
Economists had expected a cut of at least 75 basis points, given the rapid deterioration in the global economy since the central bank last cut the rate in December.
The RBA has cut the rate by a massive 400 basis points since September 2008 in attempts to protect the economy from sinking into recession.
Earlier, the Australian government said it expected economic growth to be just 1% in 2008-09, slowing to a mere 0.75% in 2009/10.
It is a marked downgrade from the respective forecasts of 2% and 2.25% made in November.
Prime Minister Kevin Rudd urged banks to pass the interest rate cut on in full to customers, but so far only two banks have announced changes to their standard variable rates.
Westpac was the first bank off the mark on Tuesday, cutting its rate a full percentage point to 5.91% immediately.
ANZ said planned to reduce its standard rate to 5.91%, from 13 February.
Other lenders are still reviewing their interest rates.