The Reserve Bank of Australia has cut interest rates more-than-expected because economic conditions were "somewhat weaker" than forecast.
The bank cut its key rate to 3.75% from 4.25%. Most analysts were expecting a 0.25 percentage point cut.
There have been increasing signs that Australia's economy is being hit by a slowdown in global growth and demand for its resources.
"This decision is based on information received over the past few months that suggests that economic conditions have been somewhat weaker than expected, while inflation has moderated," the Reserve Bank of Australia (RBA) said in a statement.
"Growth in the world economy slowed in the second half of 2011, and is likely to continue at a below-trend pace this year."