It was a strange thing to watch.

We just saw the Reserve Bank cut the official cash rate to another historic low, an eye-watering 0.5 per cent.

But the event was a distraction from the real story, which was taking place off-stage, in the heads of Prime Minister Scott Morrison and Treasurer Josh Frydenberg.

Both men have spent years playing a political game in which they've criticised Labor's (and Treasury's) response to the global financial crisis, which prevented a recession, while heralding Australia's near-30 years of uninterrupted growth.

Now, with global economic headwinds turning into a dark cumulonimbus, the Reserve Bank has just pushed Australia's overnight cash rate towards the famed zero-lower bound, that point at which traditional monetary policy deals itself out of the policy game.

We've essentially witnessed the RBA pass responsibility for economic growth to the Coalition Government, like a medicine ball.

To make his intentions clear, RBA governor Philip Lowe also said he's willing to cut rates again. But to where? 0.25 per cent? Zero per cent? He left that to our imagination.

Nothing left but fiscal policy, says economist

How must Morrison and Frydenberg be feeling now?

"It's all about fiscal policy at this point," economist Warren Hogan told the ABC.

"It's all about how we bolster our health infrastructure, how we make sure we support businesses that are on the edge of collapsing and laying off workers.

Inflation is now 1.8 per cent and shows few signs of rising, while unemployment has increased in the last 12 months from 4.9 per cent to 5.3 per cent. ( Reuters: Jason Reed )

"That's the issue for me, and that's a very tricky one. The main problem with fiscal policy is there'll be a tendency for Governments to not want to throw money away, so they won't be aggressive enough.

"What the RBA does today is actually pretty meaningless to where we go over the course of the next six months. It's up to fiscal policy."

This afternoon, sensing what was upon us, Prime Minister Morrison held a press conference in Canberra — in the hours before the RBA rate decision — to explain how he planned to deal with the crisis.

Importantly, he said, the coronavirus outbreak was a global health crisis with severe economic implications, rather than a global financial crisis, so there was no problem with the banking system this time around.

He said the health crisis has had a serious disruptive impact on the movement of people and goods around the world, and the supply chain dislocations had suppressed demand globally.

"The Treasury is working closely together with the other relevant agencies of government to address the boost that we believe will be necessary, which I will have more to say about once we have worked through the details of that plan," Morrison said.

"It will be a targeted plan. It will be a measured plan. It will be a scalable plan. It will be targeted on the real diagnosis of the economic issue we are looking to confront here.

"We will ensure that we do not make the same mistakes of previous stimulus measures that have been put in place. There is a lot of learning from what happened last time [sic].

"What we are focusing on is jobs, cash flow, and investment."

Time to change horses — away from surplus at all costs

Until recently, the Morrison Government's fiscal strategy had been to pursue a budget surplus through thick and thin, while letting the real economy largely take care of itself.

RBA governor Philip Lowe says the central bank's next move will be to cut rates again, to 0.25 per cent. ( AAP: Dan Himbrechts )

That contributed to an outcome where inflation is now 1.8 per cent, and shows few signs of rising, where unemployment has increased in the last 12 months from 4.9 per cent to 5.3 per cent (and is widely tipped to lift higher still), and where concerns have increased about economic growth turning negative.

But now it's time to change horses.

The Reserve Bank says its next move will be to cut rates again, to 0.25 per cent, at which point it will have to consider quantitative easing if it wants to ease monetary policy further.

This is uncharted territory for Australia.

"The news around the coronavirus and its impact on the global and domestic economies will get worse before it gets better," Commonwealth Bank economist Gareth Aird wrote in a note to clients on Tuesday afternoon.

"The economic data will lag — which means we are looking at a prolonged period of very poor economic data."

Pressure shifts from RBA to government

Warren Hogan says it is actually dangerous territory for the RBA, because no one knows how Australian markets will react when it cuts the interest rate to 0.25 per cent.

"It's pretty hard to see the recovery the RBA had pencilled in before coming through now," he said.

"I think the pressure on them to cut again will be pretty strong.

"But it won't be a comfortable position for the Prime Minister and Treasurer to be in either, because their fiscal strategy is basically gone now.

"They won't enjoy being in the position where the broader community, and commentators, are constantly on their case about doing things or not doing things when economic data shifts from one side to another.

"Traditionally, the RBA has been the focus for that kind of pressure, but if the cash rate is effectively at zero then there'll be a lot more explicit pressure on the government from here on in."