Opposition Leader Brendan Nelson has welcomed the Reserve Bank's interest rate cut but says the reasons behind the decision were anything but positive.
The central bank lowered the cash rate to 7.0 per cent from 7.25 per cent following today's monthly board meeting, having raised the rate 12 times since May 2002.
Dr Nelson took the unusual step yesterday of urging the independent central bank to cut rates by 50 basis points.
Today he was more circumspect about giving the bank advice.
"This is a ray of economic sunshine to be welcomed by all Australians ... it is good news we are getting an interest rate cut."
But he said the reasons for the cut - a slowing economy, rising unemployment and inflationary pressures - were anything but positive.
Asked if he wanted to see further cuts this year, Dr Nelson said: "We respect the decision that's been made by the Reserve Bank and let's just see what happens as a consequence of this one. Let's just have one at a time."
The rate cut was widely expected and is the first since December 2001.
"Weighing up the available domestic and international information, the board judged that there was now scope for monetary policy to become less restrictive," RBA governor Glenn Stevens said.
"The board will continue to assess prospects for demand and inflation over the period ahead, and set monetary policy as needed to bring inflation back to the two to three per cent target over time."
Mr Stevens said indicators of household spending have recorded subdued outcomes over recent months as credit expansion to both households and businesses has slowed.
"Surveys suggest a softening in business activity and growth in production has slowed," he added in a statement accompanying the RBA's rates decision.
"Indicators of capacity utilisation, while still high, are declining and there have also been some signs of an easing in labour market conditions."
However, Australia's rising terms of trade is working in the opposite direction, adding substantially to national income and ability to spend.
Mr Stevens noted that fixed-investment spending by businesses continues to be very strong.
"At the same time, high prices of oil and a range of other commodities have added to global inflationary risks," he said.
"They are also dampening growth in a number of countries.
"Given the opposing forces at work, considerable uncertainty has surrounded the outlook for demand and inflation."
But on balance, it was looking more likely that household demand will remain subdued and overall economic growth slow over the period ahead.
Mr Stevens said inflation was likely to remain relatively high in the short term as the consumer price index (CPI) data is impacted by high global oil prices and rises in raw materials prices in the middle of 2008.
"But looking further ahead, the outlook for demand suggests that inflation in both CPI and underlying terms is likely to decline over time, provided wages growth remains contained," he added.
"The bank's forecast remains that inflation will fall below three per cent during 2010."
Mr Stevens noted also that financial conditions have been "quite tight" and that conditions in international financial markets remain difficult.
However, the tight conditions, along with high fuel costs and lower asset values, had exerted much needed restraint on demand.