The Reserve Bank has dropped its benchmark interest rate today, after pausing in March, as it battles the global slowdown dragging on the economy.
The central bank cut the key cash rate by 25 basis points to 3pc, its lowest level since March 1960.
But farm groups are again questioning whether the cuts will be passed on to agribusiness borrowers.
The RBA has chopped 425 basis points since September in an effort to keep the economy from slipping into reverse gear.
Today's 25-basis-point cut, if passed along in full by the banks, will knock about $46 off the monthly repayment on a $350,000 loan over 25 years.
Many economists had predicted no change before this afternoon's announcement.
"Conditions in global financial markets have continued to improve gradually, helped by progress towards a resolution of banking system difficulties in the United States and other major countries," Reserve Bank governor Glenn Stevens said.
"There has already been a major change in both monetary and fiscal policy in Australia.
"Market and mortgage rates are at very low levels by historical standards and business loan rates are below recent averages, reducing debt-servicing burdens considerably.
"Nonetheless, the Board judged that there was scope for a further modest adjustment to the cash rate."
Farm lobby worried
But NSW Farmers' Association president Jock Laurie is worried farmers won't benefit from the decision.
"I've said it before, and I'll say it again – it is imperative that rate cuts are passed on to farmers and agricultural borrowers in full and as soon as possible," Mr Laurie said.
"This is the sixth rate cut by the RBA board and still we are yet to see the same level of reductions in our loans as other sectors are experiencing.
"This is despite agriculture being widely recognised as one of the most resilient sectors of the economy in weathering the current economic storm.
"In fact, it was the only sector of the economy to grow in the December quarter, rising 10.9pc while the overall economy contracted by 0.5pc," Mr Laurie said.
But Mr Laurie said the cut would weaken the Australian dollar and thus improve the competitiveness of farm exports on global markets.
"Interest rate cuts, especially in times when the inflation rate is on the way down, not only boosts domestic economic activity but helps us regain some of this competitiveness," he said.
The dollar
However, the dollar rose after the announcement, moving from US 70.92 cents to US 71.25 cents.
The market had been expecting a 50 basis point cut before the announcement, propelling the Australian dollar sharply higher after the RBA cut only 25 basis points, said RBC Capital Markets senior currency strategist Sue Trinh.
However, "a lot of the factors driving the RBA remain in place", even after the reduction, said Ms Trinh.
"The Australian economy is contracting, retail sales are still collapsing and the labour market is showing a rapid deterioration."
RBC expects the cash rate to trough at 2.5pc sometime in the second half of the year.
Economists welcome move
Moody's Economy.com's Matt Robinson said the RBA took bold, pre-emptive initiatives in the second half of last year to bring the cash rate to a stimulatory level in the face of bad economic data.
"Now it's just fine tuning," he said.
Mr Robinson said the central bank wanted to adjust its "monetary policy now so it's effective in six to nine months when we're really going to be at the turning point" between a recovery and a prolonged recession.
Bank reaction
National Australia Bank left its lending rates unchanged after the announcement, citing higher funding costs.
Commonwealth Bank passed along 10 basis points of the RBA cut, largely dismissing Treasurer Wayne Swan's plea yesterday for banks to give their customers the lower rates.
The bank's standard variable rate eased to 5.64pc, effective April 17.
"The cost of wholesale funding remains extremely high and as old funding matures and is replaced at much higher rates our average cost of funding continues to rise," said CommBank's retail banking services Ross McEwan.
Worsening economy
Analysts interpreted the reduction as an admission the economy has continued to worsen since the March decision to keep rates steady.
"Since the last meeting, fourth quarter national accounts data were weaker than expected, with the quarterly contraction quashing hopes that Australia could somehow avoid recording recession amid the global turmoil," Mr Robinson said.
RBA deputy governor Ric Battellino said last month that Australian growth was likely to fall in 2009, despite $42 billion in fiscal stimulus announced in February and aimed at bolstering growth and keeping consumers spending.
"The reality is that we cannot fully insulate ourselves from what is happening elsewhere in the world," Mr Battellino said.
The economy shrank 0.5pc in the fourth quarter, amid slumping building approvals, and retail sales which have made the prospect of a recession all but inevitable. A recession is defined as two back-to-back quarters of economic contractions. Unemployment also rose to a four-year high of 5.2pc.
"This left the RBA with little option but to offer further monetary policy stimulus, for fear of otherwise being labelled behind the curve should Australia's prospects remain gloomy for the rest of the year," Mr Robinson said.
Later this week, unemployment figures will be released, giving another read on the pace of the slowdown hitting the economy.
Analysts are expecting 25,000 jobs will have been cut by March, when the Australian Bureau of Statistics releases the data on Thursday, pushing the unemployment rate to 5.4pc.
Panic-level
HSBC chief economist John Edwards, in a note to clients, wrote that 3pc is "appropriate for a financial panic," although the language in the RBA’s accompanying statement suggests the financial panic is over.
Mr Edwards sees future problems triggered by a rush of home buyers into a mortgage market while rates remain low.
Returning rates to the policy neutral level of 5.5pc to 6pc could drive up monthly repayments by as much as 40pc, Mr Edwards has predicted, triggering a fresh wave of mortgage stress in Australia’s debt-burdened households.
"By the end of this year around one million new home loans for owner occupation will have been issued since the rate cuts began last September, almost all of them at a variable rate and at the lowest rate in over three decades," he said.
"Quite how the RBA handles the return of the cash rate towards a neutral setting around twice as high as it is now, in circumstances like these, is something we will begin to discover sometime next year."
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