Australia's central bank cut interest rates today for the first time in nearly seven years, amid signs of slowing economic growth.

The Reserve Bank of Australia (RBA) lowered the rate by 25 basis points from 7.25 per cent to 7 per cent, the first cut in borrowing costs since December 5, 2001.

The global credit squeeze, high oil prices and a troubled housing market were some of the factors that had driven the decision to lower interest rates, Glenn Stevens, the RBA governor, said in a statement.

Financial conditions had been "quite tight", following rate rises earlier this year, said Mr Stevens.

Over the past seven years, the central bank has instituted rate increases on a dozen occasions to bring down high inflation, which had been fuelled by demand from India and China for Australian iron ore and coal.

While inflation remained high, at 4.5 per cent, economic growth was expected to slow, he said.

"It is looking more likely that household demand will remain subdued and overall economic growth slow over the period ahead," he said.

Kevin Rudd, the Australian Prime Minister, who has come under fire for the country's economic slow-down, welcomed the rate cut and said this would be the first experienced by 740,000 first-time home buyers. However, he cautioned that there were more tough times ahead, and said this was not "a day for celebration."

"Interest rates took a long time to rise and will take a long time to come down,'' he said.

Australia's four biggest banks moved quickly to lower their interest rates in line with the cut in the official rate. But the Australian Chamber of Commerce and Industry said there was room for the banks to lower their rates further. They have all raised rates in recent months, citing increased difficulty in finding funding in the credit markets.

The cut was widely anticipated after the RBA signalled there was room for less restrictive monetary policy.

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