The Reserve Bank of Australia (RBA) announced on Tuesday that it decided to cut the official interest rate by 50 basis points after its May board meeting.
The RBA board on Tuesday cut the cash rate to 3.75 percent, its lowest level since December 2009.
In a statement released on Tuesday, RBA Governor Glenn Stevens said a lower inflation outlook suggested it was appropriate to cut the cash rate to help stimulate the economy.
"This decision is based on information received over the past few months that suggests that economic conditions have been somewhat weaker than expected, while inflation has moderated," Stevens said in the statement.
"In Australia, output growth was somewhat below trend over the past year, notwithstanding that growth in domestic demand ran at its fastest pace for four years."
Stevens said the size of the cut was judged to be necessary in order to deliver the appropriate level of borrowing rates.
He also said the RBA still had plenty of room to cut rates further in the coming months if necessary./.