Australia`s central bank slashed its official interest rate by a larger-than-expected 75 basis points Tuesday, cutting it to 5.25 percent amid concerns that a slowdown in China will hurt exports.

The Reserve Bank of Australia (RBA), which has now cut rates by 2.0 percent since September, said the aggressive reduction in the cash rate was warranted given the current global and domestic financial climate.

With Australian economic forecasts gloomy and some western economies headed into a recession, it said that world financial markets remained turbulent and share markets volatile while the Australia dollar had also tumbled.

RBA governor Glenn Stevens also highlighted concerns about a slowdown in China and the knock-on effect this could have for export commodity prices and therefore the Australian economy.

`International economic data have continued to point to significant weakness in the major industrial economies, and there have been further signs that China and other parts of the developing world are slowing as well,` he said.

`These conditions have contributed to further falls in world commodity prices.`

Market forecasts had been for the RBA to deliver a cut of 50 basis points following a sharp and unexpected one percent reduction in October designed to counter the effects of the global financial crisis.

Stevens said the rate cut in October, together with a 10.4 billion dollar (6.87 billion US) government stimulus package and a falling local currency, would work to strengthen Australia`s position.

`But deteriorating international conditions and falling commodity prices will have a dampening influence,` he said in a statement released after the bank board`s monthly meeting on monetary policy.

`On balance, it appears likely that spending and activity will be weaker than earlier expected.`

Stevens said while inflation remained high in the September quarter, with underlying inflation just over 4.5 percent, it was reasonable to expect it to fall given the outlook for slowing growth and demand.

`The board will continue to monitor developments and make adjustments as needed to promote sustainable growth consistent with achieving the 2.0-3.0 percent inflation target over time,` he said.

Economists said the bank would likely cut interest rates again before the end of the year, as it sheds the tightening stance designed to curb inflation which saw rates hit a 12-year high of 7.25 percent in March.

`It seems like they`re panicking with what`s happening in global growth and its implications for the Australian economy,` Tom Kenny, economist at Nomura, told Dow Jones Newswires.

Stephen Halmarick, chief economist at Citigroup, forecast the official cash rate could drop to 4.0 percent by early 2009.

`The focus of this statement is on deteriorating international conditions and falling commodity prices -- that`s really what`s got them moving aggressively,` he said.

The rate cut comes after the US Federal Reserve last week cut its key lending rate a half point to match a historic low of 1.0 percent.

Treasurer Wayne Swan welcomed the RBA announcement, saying it would provide relief for families and businesses struggling to adapt to the rapidly evolving financial conditions.

But Swan, who is responsible for delivering Australia`s annual budget, said that while Australia was being hit by the world crisis, he still expected the national economy to grow in the coming year.

`If there was any country in the world you wanted to be in these circumstances it is, of course, Australia,` he said.

The Australian stock market rallied on the cut, with the benchmark S&P/ASX 200 closing down just 0.2 percent at 4,215.1 after having dropped close to 2.0 percent in early trade.