The Reserve Bank of Australia (RBA) today has slashed interest rates yet again, this time by a full percentage point.

The fourth consecutive drop takes the official interest rate from 5.25 to 4.25 percent.

CommSec's chief economist Craig James says that the 100-point cut today means the official rate has fallen by 300 points in just four months.

After the last rate cut, analysts predicted that it was unlikely that another rate cut over 50 base points was to be expected before Christmas. Luckily for homeowners, they were very wrong indeed.

Aussies can head on into the festive season on a high, knowing that the cost of living in Australia is now at a five-year low as a result of the continuing slashing of interest rates, combined with falling petrol and grocery prices.

The 100 basis point cut means that official rates have fallen by almost 40 per cent, starting with September's 25 basis point cut.

In September, households were paying close to 10 per cent on variable mortgage rates.

"This is the most aggressive rate cut cycle that we've seen on record," Mr James said. "There's still a fair bit of gloom around the place and the Reserve Bank wants to chase that away."

The urgency of action was underlined by figures on inflation and manufacturing which were released yesterday. It reinforced the need for a "significant cut" in rates.

The focus now shifts to the retail banks. How much of a rate cut will reach borrowers remains in question, with the banks saying they still face high funding costs.

Wayne Swan called on the banks to pass on as much of the expected cut as possible.

"We expect in all of this for the banks to play their role in being part of the effort to strengthen the economy, and should there be a cut in official interest rates to pass it on as responsibly and fully as possible," the Treasurer said.