A consensus forecast had predicted the bank to cut by only 50 basis points to 6.50%.

In his statement on monetary policy bank governor Glenn Stevens said the unusually large move was due to recent changes occurring in the balance of risk, and a need to reduce borrowing costs.

Still, he said, the actions taken by the bank were not a pattern they'll follow for future decisions.

To back up his decision, the governor said the weakening in global financial markets and economies, along with the likelihood that Australia's Asian trading partners will soften demand will mean a decline in terms of trade.

He said there is a risk in Australia that demand and output could be weaker than expected.

Stevens said global inflation will likely moderate in 2009 and that Australia's inflation will probably increase by up to 5% over the next four quarters.

By Megan Ainscow, This email address is being protected from spam bots, you need Javascript enabled to view it

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