Dollar falls as RBA drops interest rates to record low

The Reserve Bank of Australia has dropped interest rates by 0.25 per cent to 2.25 per cent, a record low.

Mortgages are set to drop amid the change, which was widely forecast by market predictors.

READ MORE: What you will save if banks follow RBA

The dollar has also now dropped below US77c after rising to above US78c earlier today.

It is the first time the RBA has altered interest rates since August 2013.

Governor Glenn Stevens said the decision had been made on the back of a weakening dollar, forecast lower growth rates for Australia, higher unemployment and falling commodities prices. 

Earlier today the Australian stock market rose on the expectation of lower interest rates.

"There's the potential there to turn a good day into a great day if we got an interest rate cut," OptionsXpress market analyst Ben Le Brun said.

Another rate cut could increase the risks of a housing bubble, according to a leading economist, as new figures show house prices got off to a flying start in 2015.

"While global deflationary forces support the case for an easing of domestic monetary conditions, the risk is that another rate cut will lead to unsustainable strength in domestic home prices and contribute to inflationary risks," CommSec chief economist Craig James said.

Mr James' sentiments echoed those of CoreLogic RP Data head of research Tim Lawless.

"Lower interest rates could potentially add further fuel to the housing market, particularly the investor segment, which continues to remain strong based on recent data," Mr Lawless said.