Sydney - The Reserve Bank of Australia (RBA) on Tuesday cut interest rates by one-quarter of a per cent to 7 per cent in response to a slew of figures showing a slowing economy.

The move to cheapen the cost of borrowing came after 12 consecutive rises since May 2002.

The first drop in almost 7 years was expected after the RBA said it was confident inflation had peaked and that a stimulus was needed.

Some economists had predicted a 50-basis-point cut to stave off a possible recession. Analysts expect rates to be cut again before the end of the year. (dpa)