The Reserve Bank has decided to lower the cash rate by another 25 basis points to 3.5 per cent.

RBA governor Glenn Stevens said “financial market sentiment has deteriorated over the past month”.

“At today's meeting, the Board judged that, with modest domestic growth and a weaker and more uncertain international environment, the outlook for inflation afforded scope for a more accommodative stance of monetary policy,” he said.

The RBA highlighted there modest growth continued in the first part of 2012 with a significant variation across sectors.

“Overall labour market conditions firmed a little, notwithstanding job shedding in some industries, and the rate of unemployment remains low,” Steven said.

“Nonetheless, both households and businesses continue to exhibit a degree of precautionary behaviour, which may continue in the near term.”

The RBA also recognised there have been no new data for inflation since the previous meeting.

“Over the coming one to two years, and abstracting from the effects of the carbon price, inflation is expected to be in the 2–3 per cent range,” Steven said.

“In the near term, it is likely to be in the lower part of that range, though maintaining low inflation over the longer term will require growth in domestic costs to slow as the effects of the earlier high exchange rate wane.”