The Reserve Bank of Australia has cut official interest rates to a new record low of 0.5% due to the “significant effect” of the coronavirus outbreak on the Australian economy and has signalled it is prepared to cut further if needed.

“The global outbreak of the coronavirus is expected to delay progress in Australia towards full employment and the inflation target,” the RBA governor, Philip Lowe, said.

He said that at a meeting on Tuesday the bank’s board “therefore judged that it was appropriate to ease monetary policy further to provide additional support to employment and economic activity”.

The Covid-19 outbreak cruelled hopes of an end to a slowdown in global economic growth that started in 2018, he said.

He said it also meant Australian growth for the first three months of the year would probably be lower than the bank previously thought.

“The coronavirus outbreak overseas is having a significant effect on the Australian economy at present, particularly in the education and travel sectors,” he said.

“The uncertainty that it is creating is also likely to affect domestic spending. As a result, GDP growth in the March quarter is likely to be noticeably weaker than earlier expected. Given the evolving situation, it is difficult to predict how large and long-lasting the effect will be.”

The news had little impact on the stock market. The benchmark ASX200 index, which had been up around 1.8% for the day immediately before the announcement, fell back 0.4 percentage points by 2.37pm.

Home lending is the normal focus when assessing whether banks have passed through the full benefit of rate cuts to their customers, but attention this time is likely to focus on loans to businesses that need relief from the coronavirus crisis.

Before the announcement, the prime minister, Scott Morrison, called on the banks to pass on any rate cut in full.

“There is no doubt that if the Reserve Bank were to take a decision today on cash rates that the government would absolutely expect the four big banks to come to the table and to do their bit in supporting Australians as we go through the impact of the coronavirus,” he said.

All four of the big banks – ANZ, Commonwealth Bank, NAB and Westpac – have told the Guardian they already have measures in place to support business customers who have taken a hit because of the crisis.

Futures market traders had been banking on a cut, with ASX data showing trading on the exchange implied a 100% chance of a reduction from 0.75% to 0.5%.

The probability of a cut had been tracking at between 10% and 20% last week but suddenly surged to 100% on Monday.

Further out, traders expect the official cash rate to drop to 0.25% by July.

Lowe has previously said that, because of the way the RBA buys and sells money at prices within a “corridor” around the official rate, a cut to 0.25% would effectively mean that “we would, at that point, be dealing with zero interest rates”.

In November, Lowe said so-called “quantitative easing”, where central banks buy assets such as government bonds from the private sector to prop up the economy, could be an option for Australia if rates hit 0.25%.

However, early last month he said it was “extraordinarily unlikely” the measure would be needed.

The RBA governor has also been clear that cuts to interest rates have nearly exhausted their ability to make a difference.

Because this implies a need for the government to spend money instead, it has sparked a subterranean war between the bank and the Morrison government, which until recently has been more concerned with reaching its much-advertised budget surplus.

However, Morrison has now promised a “moderate” stimulus package to help the recovery of an economy already ravaged by bushfires and floods.

Modelling by the veteran economist Warwick McKibbin shows the virus could slash Australia’s growth by between 2% and 8% for a year, either of which would probably be enough to tip the country into recession.

The outbreak has already hammered industries including tourism, education and mining that are heavily dependent on exports to China.

On Tuesday, the federal government’s agricultural economics unit, Abares, predicted Australia’s seafood industry would take a hammering from the virus, with the value of output falling 12% this financial year, to $2.81bn.

About 94% of Australia’s rock lobster exports and 42% of abalone exports are to China, Abares said.

It said farm production would also fall slightly due to the bushfires and the drought, dropping to $59bn from $62bn last year.

Earlier on Tuesday, the Australian market opened the day up about 1.4%, its first rise after more than a week of falls caused by concerns over the economic damage caused by the coronavirus outbreak.

The increase followed relief rallies on overseas markets that saw the US S&P500 index soar by 4.6% and the UK’s FTSE book a more modest 1.1% rise.