Politicians and business have clearly put the onus on the banks to make the Reserve Bank of Australia's (RBA) interest rate cut - the first in two and a half years - effective in restoring confidence in the economy.
As expected by a majority of economists, the central bank cut the official cash rate by 25 basis points to 4.5 per cent following its monthly board meeting on Tuesday.
RBA governor Glenn Stevens said the board had maintained a "mildly restrictive" monetary policy stance over the past year due to concerns about the inflation outlook.
"With overall (economic) growth moderate, inflation now likely to be close to target and confidence subdued outside the resources sector, the board concluded that a more neutral stance of monetary policy would now be consistent with achieving sustainable growth and 2-3 per cent inflation over time," he said in his post-meeting statement.
The move, the first in the cash rate since Melbourne Cup day last year, should cut almost $50 a month off repayments on an average $300,000 home loan.
Of the big four banks, Westpac and Commonwealth Bank of Australia moved quickly to pass on the 25 basis point reduction to their variable home loan rates.
ANZ and National Australia Bank said their lending rates were under review.
Prime Minister Julia Gillard welcomed the RBA's rate decision, saying it would provide relief for families being pressured by the cost of living.
"Despite our strong economic fundamentals, and they are strong, parts of the community are doing it very tough," she told parliament.
Ms Gillard said the central bank's decision reflected the patchwork nature of the economy, where the resources sector was "screaming ahead", resulting in an historically high Australian dollar that was putting pressure on other sectors of the economy, such as manufacturing.
But she said all the banks must pass on this interest rate cut in full.
"Australian customers will be looking to their bank to cut interest rates in full," she said.
Treasurer Wayne Swan said the government was playing its part in fiscal policy with its plan to return the budget to surplus in 2012/13, "because we do not want to add to inflationary pressures in our economy".
"That is why we have the fastest fiscal consolidation - that is, return to surplus - in our history," he told parliament.
But opposition treasury spokesman Joe Hockey said the RBA's decision had "absolutely nothing" to do with the government, other than the fact it was contributing to diminishing confidence.
"We have falling consumer confidence in Australia and the non-resources sectors of the economy are certainly not growing at the pace that was expected," Mr Hockey told reporters in Canberra.
"We have got a slower economy, we have got less consumer confidence, the Reserve Bank had to act ... (a rate cut was) desperately needed by Australian households."
Australian Chamber of Commerce and Industry director of economics and industry policy Greg Evans said it was the "right decision at the right time" and would help to restore business and consumer confidence as long as the banks passed on the cut to all borrowers.
"It's certainly some of the better news that the small business sector has received in the last 12 months," Mr Evans told reporters in Canberra.
Australian National Retailers Association chief executive Margy Osmond said retailers across the country would probably be "dancing in the aisles".
"It means the RBA has gone from being the Grinch to perhaps the Santa Claus," she told reporters in Canberra.