Sydney  - The Reserve Bank of Australia on Tuesday cut its benchmark interest rate by 0.25 percentage points to 3 per cent in hopes of breathing life into the somnolent economy.

It was the fifth cut in six months in the rate the central bank charges banks for borrowing.

The further easing of monetary policy came on the heels of figures showing a further fall in inflation. The bank said it now sees recession as a worse threat than inflation.

Despite the urging of the government, high street banks and finance houses were unlikely to pass on the full rate cut because their costs of borrowing have risen in line with the international credit crunch. (dpa)