The comment was contained in minutes released by the RBA this morning of its board meeting last month. That meeting resulted in the RBA cutting its key cash rate by another one percentage point to 3.25%, the lowest since 1964.

Katie Dean, an ANZ economist, said the RBA has broadly matched market expectations with rate cuts during the current series of reductions.

''The last thing you want to do in this market is shock (it),'' said Ms Dean.

The RBA has already slashed 4 percentage points off its key cash rate since September, prompting commercial lenders to pass on most of the reduction to mortgage holders and businesses alike. The savings on an average monthly repayment on a $350,000, 25-year mortgage amount to about $824, if the cuts have been fully passed on.

The release of the RBA minutes prompted a slide in the Australian dollar, with the currency dropping more than one-quarter of a US cent to 64.78 US cents.

Demand stimulated

The rate cuts come on top of Federal Government efforts to stimulate demand in the economy, including a $42 billion spending package passed by parliament last week.

"Members noted that market expectations were for an easing in the official cash rate of 100 basis points at (the February) meeting, with the trough in the cash rate now expected to be around 2% later in the year," the RBA minutes said.

Economists say that while more cuts are likely, the RBA will probably make smaller reductions when it does move.

''The odds are the quantum of cuts won't be in the degree we've seen,'' said economist Su-Lin Ong of RBC Capital Markets. ''We're obviously closer now than we were months ago'' to the trough, she said.

Before the release of the release of today's comments from the RBA, financial markets were betting that the board will slice interest rates by another 50 basis points, or half a percentage point, to 2.75%, when it next meets on March 3.

Delayed impact

Economists interpreted today's RBA minutes as suggesting the central bank may hold off a rate cut next month while it waits to see the effect on the economy of extra Government spending, including the $10.4 billion announced in October.

''Interestingly, the minutes specify that the fiscal or monetary moves will 'take time' to be effective,'' said John Edwards, HSBC's chief economist for Australia and New Zealand. ''This implies that the RBA does not feel obliged to respond further to immediate weakness.''

In its minutes, the RBA notes the stimulus ''would take time to be effective and could be expected to have only a modest effect on the near-term outlook in Australia. Given the speed at which the global contraction had occurred, short-term prospects were thus still for weakness in demand and output.''

The RBA also noted retail sales probably fell in January, underscoring its view that a rebound in activity will take time.

RBC's Ong said the impact from the government outlays and rate cuts should help the economy later this year and into 2010, adding that the greatest threat to the economy may come from off shore.

''No doubt (the RBA) continues to paint a pretty poor picture of global backdrop,'' she said. ''And they acknowledge the sharp slowdown in Asia, a key development in the past few months.''

HSBC's Mr Edwards is more optimistic.

''If the Australian economy continues to weather the storm as well as it has for the last few months, the RBA may find that today's cash rate of 3.25% is quite low enough,'' Mr Edwards said.

BusinessDay