The decision by the Reserve Bank to cut the official cash rate by 0.25 percent shows up a real concern in the Australian economy. It's also partly of its own making.

The Reserve Bank already cut interest rates in November and December — each by a quarter of a percent and each time the banks passed it on in full.

Come February this year 100 percent of economists thought the RBA would cut again. It didn't, but the banks raised their own rates.

To be honest, this drove a stake through the confidence of Australian consumers and many businesses doing it tough. It sent entirely the wrong message to markets.

And because the RBA at that time read the markets wrong, they need to take some blame for the ensuing downturn in confidence.

Of course it is not entirely due to the RBA.

Consumers remain conservative; businesses are paying down debt and keeping staff as flexible as our industrial relations system will allow.

By May the RBA knew it had to act. It surprised the markets by cutting rates by 0.5 percent.

It surely should have worked. But consumer confidence figures taken after that rate cut — and retail sales — show even the shock treatment was having little impact on the Australian consumer.

Then Europe erupted, the US jobs figures broke the heart of investors and the markets went into a free-fall.

So the Reserve Bank has acted again. Time will tell whether it has any impact at all.

Of course the Treasurer, Wayne Swan and the Treasury Secretary Martin Parkison have warned all of us not to expect any massive handouts like in 2008. While they're trying to honour a budget promise to get back into surplus in 2012-13 there is no free money coming anybody's way.

They're still cutting — taking money out of the economy. And that's why the Reserve Bank is doing the heavy lifting of pumping up the economy with lower interest rates.

At 3.50 percent it still has a fair way to move. But certainly, today, seeing rates this low makes you wonder if went wrong with the policy settings ... and if anybody will own up to it.