Mortgage borrowers, therefore, will get some long-awaited rate relief after the central bank's first cut in interest rates in nearly seven years, lowering its cash rate to 7pc from its 12-year high of 7.25pc.

Commercial banks earlier this year came under fire for raising their own lending rates faster than those of the RBA, adding about 60 basis points above the official increase this year.

The RBA cut was welcomed by Prime Minister Kevin Rudd as a relief for homebuyers, but he said it was only a beginning.

"This interest rate decision is welcome, but it is not a day for celebration. Interest rates took a long time to rise, they will take a long time, a long time to come back down, and the road will be a very uneven one,'' Mr Rudd told Parliament.

The RBA left open the possibility of more rate cuts to come.

It says, however, it will continue to assess prospects for demand and inflation over the period ahead, and set monetary policy as needed to bring inflation back to the 2-3pc target over time.'

Today's move was almost universally expected by analysts.

The Australian Bureau of Statistics will provide an overview of the economy's strength when it releases gross domestic product data for the June quarter.

Economists are expecting GDP growth to have slowed to 2.9pc year-on-year for the quarter from 3.6pc in the previous three months.

Matt Robinson of Moody's Economy.com said: "This time, the RBA's saying the economy is doing what we want and interest rates are where we want them.

"Monetary policy conditions are still tight, even with the RBA easing the interest rate by 25 basis points."

He expects another cut during the final three months of this year and another before the end of June 2009.