The Reserve Bank of Australia (RBA) cut its benchmark interest rate by 25 basis points on Tuesday to a fresh record low of 1.50 percent amid signs of slowing economic growth.
The move was widely expected, with 36 out of 47 economists surveyed by Reuters expecting a rate cut.
"The global economy is continuing to grow at a lower than average pace," the RBA said in a statement. "In Australia, recent data suggest that overall growth is continuing at a moderate pace, despite a very large decline in business investment."
But inflation was low and appeared likely to remain so, the central bank said.
"The board judged that prospects for sustainable growth in the economy, with inflation returning to target over time, would be improved by easing monetary policy," the RBA said.
The RBA added that the recent strength in the Australian dollar could "complicate" efforts to adjust the economy. The country has been working to transition away from relying on commodity exports, which have suffered from declining prices and demand, and toward domestic drivers.
Economists have expressed concern about the strength of the Australian dollar.
"The comment that an appreciating dollar could 'complicate' things is an understatement as a stronger dollar would make it much harder for the bank to raise inflation back within its 2-3 percent target range," noted Paul Dales, chief Australia and New Zealand economist at Capital Economics, in a note after the decision. "Lower rates are the best way to weaken the Australian dollar."
Analysts noted, however, that much of the Aussie dollar's strength was related to inflows chasing the country's bond yields, which offered a positive return even as many government bond yields have turned negative.
The currency is "a little overvalued" when compared with factors such as commodity prices and terms of trade, Andrew Ticehurst, a rate strategist at Nomura Australia, told CNBC's "Capital Connection" after the RBA decision was announced. .