Scott Morrison is under growing pressure to bring forward a stimulus package in response to the coronavirus outbreak after the Reserve Bank cut interest rates to record lows and warned the disease was having a “significant effect” on the Australian economy.

The government has been talking up an impending stimulus package to “boost” affected sectors, flagging a focus on vulnerable small and medium-sized businesses in the worst-hit industries of tourism and education.

On Tuesday the Reserve Bank governor, Philip Lowe, abandoned his previous talk of the economy turning for the better in favour of grim warnings about the “significant effect” of the coronavirus outbreak on the global and Australian economies, and cut official interest rates to 0.5%.

All four major banks passed on the cut in full, after Morrison had issued a warning that they needed to “do their bit” to help the economy withstand the shock of the health crisis as it rippled through supply chains and hit consumer confidence.

Ahead of the RBA’s meeting, Morrison said the government and the central bank were “aligned” in responding to the crisis, and details of a stimulus package were being finalised.

On Tuesday evening, Morrison promised an announcement before the May budget “in the not-too-distant future”, expected to be in the next fortnight.

Morrison told A Current Affair the government would not delay stimulus but also wanted to avoid the “mistakes” of insulation and school infrastructure programs that helped avert the global financial crisis.

Earlier, Morrison told reporters in Canberra: “The most important thing is the cash flow, particularly of more vulnerable small and medium-sized enterprises, the workers, those who work for those businesses, and ensuring that they’re in a position to be there on the other side when the economy bounces back.

“What we are focusing on is jobs, cash flow and investment.”

Announcing Tuesday’s cut – the fourth since June last year – Lowe said the bank’s board had judged that it was appropriate to ease monetary policy further “to provide additional support to employment and economic activity”.

“The uncertainty that it is creating is also likely to affect domestic spending.”

He said the central bank would be prepared to cut again – something markets expect to happen by July – and bring official interest rates to 0.25%, a number he has previously said is effectively the same as zero.

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

Labor’s shadow treasurer, Jim Chalmers, said the government was preparing to respond to the coronavirus outbreak “from a position of relative economic weakness, not strength”, pointing to sluggish growth and investment figures and rising unemployment prior to the virus outbreak and the summer bushfires.

“The fourth interest rate cut in the last 10 months since the election is an indication that the Reserve Bank has had to do all the heavy lifting, because Scott Morrison and (the treasurer) Josh Frydenberg could not be bothered coming up with a plan for the economy, which has been floundering for some time,” Chalmers said.

“The nation is crying out for economic leadership and an economic plan and Scott Morrison, as always, has been missing in action.”

On the ABC’s 7.30, Morrison defended the Coalition’s handling of the economy, citing fast-tracked infrastructure spending and tax cuts passed in July as evidence of its program, but continued to rebuff business demands to sign up to a target of net zero emissions by 2050.

In October, Lowe said the bank had detected signs of a “gentle turning point” in the economy that would help stimulate Australia’s persistently low economic growth and boost stagnant wages that have smashed consumer confidence.

But on Tuesday Lowe said he also now believed Australian growth for the first three months of the year would probably be “noticeably weaker” than the bank previously thought.

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

“Given the evolving situation, it is difficult to predict how large and long-lasting the effect will be.”

Following the rate cut, Westpac and NAB both took the unusual step of committing to pass the full cut on to small business borrowers, many of which were either losing customers due to the virus outbreak or have had their supply chains broken, as well as home lenders.

Australia’s biggest bank, the Commonwealth, cut home loan rates by the full 0.25 points while ANZ cut some rates by even more, 0.35 points.

In an alarming development, the Australian stock market, which had been up as much as 1.8% during the day, began to slide immediately after the rate cut was announced.

In trade following the 2.30pm announcement, the benchmark ASX200 shed 1.1 percentage points, to finish the day up just 0.69% and set up a bad day for overseas markets.

The move came ahead of the release of economic growth figures for the three months to the end of December on Wednesday that are expected to be singed by the first few weeks of the bushfire crisis as well as revealing the impact of a shockingly poor Christmas shopping season.

The KPMG chief economist, Brendan Rynne, predicted growth for the quarter of 0.5% – up marginally from the weak September quarter figure of 0.4%.

“That figure is modest, but will probably begin to look impressive by the time we see the Q1 figures,” which will cover the first three months of 2020, he said.

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.

All four of the big banks 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 an interest rate 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.

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.