The central bank lopped a full percentage point, or 100 basis points, off its key cash rate, reducing it to 4.25%. That level matches its previous record low - reached in the wake of the 9/11 terrorist attacks in the US in 2001 - since the RBA began targeting rates about two decades ago.

The Commonwealth Bank and the National Australia Bank led commercial lenders in responding to today's reduction, passing on the 100 basis-point cut in full to customers. Westpac, though, lowered its standard loan rate by only 80 basis points, to 6.91%.

The RBA cut marks four months in a row of reductions, as the central bank tries to shield the domestic economy for a global slowdown. A consensus of twenty economists surveyed by Bloomberg predicted the RBA would lower rates today by 75 basis points.

''It's good they've decided to move as aggressively as 100 basis points,'' said economist Stephen Halmarick of Citi. ''It just shows there is continued concern that the global economic outlook is very uncertain.''

There is already some evidence that lower interest rates are attracting people back into the housing market, said Mr Halmarick.

But he welcomed the RBA's move, because ''the headwinds coming from the global economy are getting worse and worse.''

Mortgage savings

For a typical 25-year, $300,000 home loan, today's cut if passed on in full by lenders will save borrowers about $193 a month in payments or $58,000 over the life of the loan.

All up, the central bank has chopped three full percentage points from the key rate since September, when concerns about a recession began to overshadow inflation concerns. Commercial lenders will be under pressure to join the Commonwealth Bank in passing on more of the rate reductions to their customers.

Some analysts predict the interest rate will fall to 2.5% by mid-2009, effectively reducing the interest rate by two-thirds within a year.

The Aussie dollar was little changed after the rate move, buying about 63.75 US cents in recent trading.

czappone@fairfax.com.au

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