Commonwealth Bank also passed on the full rate cut this afternoon, lowering its standard variable home loan rate to 6.15 per cent with effect from May 13. "A further decline in the cash rate was appropriate to encourage sustainable growth in the economy" ... Glenn Stevens. Credit:Bloomberg Westpac lowered its rates just before 5pm, bringing its standard variable mortgage rate down by 25 basis points to 6.26 per cent, with effect from May 20. After NAB and CommBank's moves to pass on the 0.25 basis point cut in full, Westpac said they had put their interest rates under review. ANZ Bank will make a decision on interest rates on Friday as part of its regular review. Financial markets and economists have been split over whether the central bank would continue its easing cycle, which has seen 175 basis points of cuts since November 2011 before today's announcement.

The Australian dollar fell below 102 US cents following the decision. It was hovering at about 102.38 US cents just before 2.30pm. RBA governor Glenn Stevens. Credit:Nic Walker The cut would be welcomed by families and by small businesses, was the "interest rate cut that they thoroughly deserve", the Treasurer, Wayne Swan, said. "I'm pleased that the NAB and the Bank of Queensland have passed this cut through in full," he said, adding the picture the Reserve Bank was painting was "in no way similar in no way similar to the picture at the height of the financial crisis". Appropriate to encourage sustainable growth

"The Board has previously noted that the inflation outlook would afford scope to ease further, should that be necessary to support demand," RBA governor Glenn Stevens said in a statement. "At today's meeting the Board decided to use some of that scope. It judged that a further decline in the cash rate was appropriate to encourage sustainable growth in the economy, consistent with achieving the inflation target." This is the first time the central bank has cut interest rates below 3 per cent since it began setting monetary policy in 1990. JP Morgan economist Tom Kennedy said the RBA was keeping its easing bias, leaving the door open to further cuts if they were needed to stimulate economic activity. "I think what it's really come down to is that the board has put a lot of emphasis on the jobless rate moving higher," said Mr Kennedy.

"Business investment remains pretty soft and I think dwelling investment also remains soft. They are the things we have seen over the past month or so. It looks like they have not put too much emphasis on those really strong retail figures.” "I think they are still looking for a bit of lift in the construction sector and the non-mining sectors." Low inflation 'allowed for rate cut "The most likely reason that they cut is because they can, because inflation is low," UBS fixed income strategist Matthew Johnson said. "There are some modest tweaks in the statement, but broadly speaking there aren't many changes to the statement."

Mr Johnson said the sense from the statement was the RBA would keep the cash rate on hold for a few months as they wait for more economic data to come in. Commonwealth Bank chief economist Michael Blythe said the central bank would be looking for clearer signs that residential construction is picking up, that consumers are still spending and that non-mining capex is starting to turn around following the latest cut. "The one thing that would worry them is if lower rates led to an acceleration in house price growth - that's clearly what they don't want to see," Mr Blythe said. "So if you see a bit of acceleration in house prices on the back of this rate cut, then that would make it difficult for them to cut rates further." Strong Australian dollar

Mr Stevens added that while an easing in interest rates has flowed through to the economy, the Australian dollar remained at a "historically high level over the past 18 months". "Moreover, the demand for credit remains, at this point, relatively subdued," he said. Financial markets were pricing in a 50 per cent chance of a 25 basis points reduction for May, and tipping at least 50 basis points of cuts by the end of the year. UBS economists Scott Haslem and Georgie Tharenou said they believed the RBA had "grown weary of a high Australian dollar, while becoming more comfortable about the high pace of domestic inflation given the improving productivity trend". The economists said given the persistent strength of the dollar, lower commodity prices and slower growth in China, the cash rate was likely to remain lower for longer as compared to previous easing cycles.

Retailers cheer decision The chief executive of the Australian National Retailers Association, Margy Osmond, said the lower rate was "just what the doctor ordered". "The sector is doing what it can to get Aussies back to shopping, prices are down and there's not much room for them to drop further." Ms Osmond said. "With the RBA now playing its part consumers may now feel secure enough to spend and business can recover. Data released yesterday showed that seasonally adjusted retail sales data for March was softer than expected. Retail trade volumes, which represent sales excluding inflation, rose 2.2 per cent, the strongest quarterly increase since March 2007. What will the banks do

Attention now turns to the big banks and other mortgage lenders, and whether they would follow NAB and the Commonwealth Bank in passing on the full 25 basis points of cuts. The Bank of Queensland also lowered its rates by 25 basis points to 6.26 per cent, citing lower funding cost in the wholesale market. UBank, launched in 2008 by NAB, also reduced its standard variable rate by 25 basis points to 5.12 per cent. "The standard variable housing rate stands at 6.45 per cent, still well above the lows of 5.75 per cent that held over April and May 2009, and above the previous low of 5.38 per cent in July 1968 and above the record low of 5.00 per cent set in May 1964," CommSec chief economist Craig James said in a research note. In figures released today, Australia's trade balance hit a surplus of $307 million in March after a $111 million deficit in February.

At the same time, Australian house prices edged 0.1 per cent higher in the March quarter but lower than economists' expectations, echoing fears of tepid growth in the sector. The chief executive of Australia's largest building product supplier, Mike Kane, yesterday warned that housing demand had stalled and could be going backwards despite the recent rate cuts. Data released yesterday showed that seasonally adjusted retail sales data for March was softer than expected, as job advertisements fell in April for the second consecutive month and inflation for the same month remained subdued. Retail trade volumes, which represent sales excluding inflation, rose 2.2 per cent, the strongest quarterly increase since March 2007. Economic "tipping point"

Coca-Cola Amatil managing director Terry Davis said a lower interest rate may be a ''tipping point'' for bringing down the value of the Australian dollar which could have a significant impact on the economy. ''I think the damage that has been done as a result of the strength of the Australian dollar is much more significant than what policymakers have taken notice of.'' He pointed to areas like tourism. Loading ''There are 2 million more people going out of Australia than coming in to Australia, 10 years ago it was the reverse of that. That's 2 million people who don't buy a can of coke that day, or don't go to Harvey Norman or don't go to the theatre, use a hire car.''

with Jonathan Swan and Colin Kruger