SYDNEY - Australia's central bank on Tuesday cut interest rates for the first time in over four years.

The board of governors of the Reserve Bank of Australia (RBA) announced a decision to lower the cash rate target by 25 basis points to 4.1 percent, and the interest rate paid on Exchange Settlement balances to 4 percent.

It marks the first time the RBA has cut the key interest rate since November 2020 and comes after more than a year of the rate being on hold at a 13-year high of 4.35 percent.

The previous cut in 2020 was to a record-low 0.1 percent before 13 increases between May 2022 and November 2023.

In its post-meeting statement, the RBA board said that Australia's rate of inflation has fallen "substantially" from its peak in 2022, as higher interest rates have been working to bring aggregate demand and supply closer towards balance.

"In the December quarter underlying inflation was 3.2 percent, which suggests inflationary pressures are easing a little more quickly than expected," it said. "There has also been continued subdued growth in private demand and wage pressures have eased. These factors give the Board more confidence that inflation is moving sustainably towards the midpoint of the 2-3 percent target range."

However, the board said that future cuts are not guaranteed and that sustainably cutting inflation would remain its priority.

There are notable uncertainties about the outlook for domestic economic activity and inflation, it said, adding that uncertainty about the outlook abroad also remains significant.

"Geopolitical and policy uncertainties are pronounced and may themselves bear down on activity in many countries if households and firms delay expenditures pending greater clarity on the outlook," the board said.

It said it would make future decisions based on economic data and developments in the global economy and financial markets.

Economists, experts and Australia's banks had widely predicted that the RBA would cut rates on Tuesday.

Minutes after the central bank announced the decision, all of Australia's "big four" banks -- the Commonwealth Bank of Australia, National Australia Bank, Westpac and ANZ -- announced they would pass on the interest rate cut to customers.