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HOME loan interest rates were reduced again last month, with the Reserve Bank cutting rates by a full half per cent.
The cut has been passed on in full by most of Australia's banks and other lenders.
Average home loan repayments have been slashed by $105 a month since the start of this year after the Reserve Bank last month cut official rates by 5 per cent - its third cut in as many months.
A slowing world economy replaced the GST as a likely source of ongoing economic weakness, the bank suggested, but added there were fears Australia was facing a self-fulfilling crisis of confidence.
The bank decided it was "prudent" to give a boost to domestic demand with a 0.5 per cent reduction. This surprised economists, who thought ambiguous economic data and the bank's traditional caution would translate to a cut of only 0.25 per cent.
Banks and other lenders promised to reduce their variable rates to 6.8 per cent. The reduction brings rates to within 0.25 per cent of their lowest level of late 1999, when the tightening cycle began.
Repayments on a average home loan of $130,000 over 25 years will be cut by about $22 a month.
The Government welcomed the prospect of lower interest rates as good news for home buyers and small business.
Reserve Bank governor Ian Macfarlane said the "unprecedented and unexpected" fall in housing investment, due to the temporary effects of the new Goods and Services Tax (GST), had led to the contraction in the last three months of last year.
It is generally expected that there may be a further cut in interest rates, of around quarter per cent, later this month.