Local sentiment took a major dive after ratings agency Standard and Poor’s indicated that they will put 15 more eurozone countries on review for a possible downgrade.
The RBA responded to the global uncertainty and decided to cut the official cash rate from 4.5% to 4.25%, matching economists’ expectations.
RBA governor Glenn Stevens said that the European financial and banking problems were likely to weigh on economic activity for the foreseeable future.
The central bank cited weakening commodity prices as a factor behind the rate cut.
Lower commodity prices have helped take the pressure off inflation, thus providing scope for further easing.
The four banking majors have placed their lending rates “under review” while they decide on how much of the RBA cut to pass onto consumers.
The big four nevertheless had a down day; Westpac shed 1.1%, while rival NAB declined 1.5%.
The mining giants were hard hit amid nagging fears over the global economy; BHP lost 1.5%, and Rio Tinto dropped 2.2%.
Some of the retailers bucked the negative trend, with JB Hi-Fi and David Jones putting on 0.8% and 0.7% respectively.
The ASX 200 slumped 64 points (-1.5%), settling at 4257.