The Reserve Bank today stunned financial markets with a dramatic 100 basis point reduction to the official cash rate.

The cash rate now sits at a two year low at six per cent however the one per cent cut was the largest delivered in 16 years.

Glenn Stevens, RBA governor, said international financial market conditions had taken a “significant turn for the worse” in September and that the board recognised a “material change to the balance of risks” surrounding the Australian economy.

Mr Stevens indicated that the significant reduction was intended to benefit both lenders and borrowers as funding costs continue to rise.

“An unusually large movement in the cash rate was appropriate in order to bring about a significant reduction in costs to borrowers,” Mr Stevens said.

“Financing is likely to be difficult around the world for some time ahead.”