The Reserve Bank of Australia has cut the official interest rate by 25 basis points to a historic low of 1.75 per cent, just hours before the federal budget is handed down.

It is the first change in interest rates since May last year, when rates were cut 25 basis points to 2 per cent.

The decision comes after data showed inflationary pressures were lower than expected.

In a statement, RBA governor Glenn Stevens said the unexpected 0.2 per cent drop in March quarter consumer prices from an already low level was a key concern for the central bank.

He added, “While the quarterly data contain some temporary factors, these results, together with ongoing very subdued growth in labour costs and very low cost pressures elsewhere in the world, point to a lower outlook for inflation than previously forecast.”

Mr Stevens said the RBA board took ‘careful note’ of developments in the housing market in reaching today’s decision.

“At present, the potential risks of lower interest rates in this area are less than they were a year ago,” he said.

– TiVi Tuan-san