The Reserve Bank of Australia unexpectedly cut its benchmark cash rate to a record low on Tuesday to underpin economic growth, toeing in line with its counterpart in Europe, which lowered its key interest rate by a quarter point last week.

The central bank of Australia lowered the official cash rate by 25 basis points to 2.75 percent, effective May 8. Economists had expected the Monetary Policy Board of the Reserve Bank to maintain the rate at 3 percent.

Previously, the board has noted that the inflation outlook would afford scope to ease further, should that be necessary to support demand.

In a statement released after today's meeting, Governor Glenn Stevens said that the bank will use some of that scope as the Board judged "a further decline in the cash rate was appropriate to encourage sustainable growth in the economy, consistent with achieving the inflation target."

RBA started its easing cycle in November 2011 and has reduced the rate by a cumulative 200 basis points since then.

The bank maintained its outlook on prices, saying inflation over the next one to two years will be consistent with its target. However, the RBA expressed concerns over the "unusual" strength in the currency.

Stevens said the exchange rate has been "little changed at a historically high level over the past 18 months, which is unusual given the decline in export prices and interest rates during that time."

He also noted that as the peak in the level of resources sector investment is likely to occur this year, there is scope for other areas of demand to grow more strongly over the next couple of years.

The growth in Australia was a bit below trend in the second half of 2012 and this trend have continued into 2013, Stevens said. However, the bank was upbeat on consumption, dwelling investment, business investment as well as exports.

Stevens noted that all these factors, along with the bank's interest rate cuts, will be helpful in sustaining growth. On the global economy, the board said that it is likely to record growth a little below trend this year, before picking up next year.

Separately, the Australian Bureau of Statistics said that the country's trade balance was in a surplus of A$307 million in March. This compares with a deficit of A$111 million in February. Economists expected a flat outcome for the month

Exports grew 1 percent in March from a month earlier, while imports fell 1 percent, the Bureau said.

Another report from the statistical office showed that Australia's house price index for eight capital cities climbed 2.6 percent year-on-year in the first quarter following a 2.5 percent gain in the previous quarter. Economists had forecast a steeper 4 percent increase.

On a quarterly basis, the index rose 0.1 percent in the March quarter, slower than the 1.8 percent increase expected by economists. This was also weaker than the December quarter's 2 percent gain.

Meanwhile, a survey by the Australian Industry Group and the Housing Industry Association showed that an indicator of construction activity slid to 35.2 in April from 39 in March, suggesting a steeper decline in activity. Readings below 50 indicate contraction.

RTTNews