Australia's central bank slashed its forecasts for economic growth and inflation, increasing Governor Glenn Stevens's scope to extend interest-rate cuts that have taken the benchmark rate to the lowest in more than four decades, Bloomberg reported.
Gross domestic product will rise 0.25 percent in the 12 months through June, according to the Reserve Bank of Australia, which in November predicted growth of 1.5 percent for the same period. Inflation will slow to 1.75 percent in the 12 months through June, the bank said today in Sydney.
Stevens has reduced the benchmark lending rate by 4 percentage points since early September to a 45-year low of 3.25 percent, which he says will "provide significant stimulus" to offset weaker export demand. Consumer spending will also be helped by the government's plan to spend A$42 billion ($27 billion) in handouts to families and for infrastructure.
"It's not all doom and gloom from the central bank," said Savanth Sebastian, an economist at Commonwealth Bank of Australia in Sydney. Policy makers "seem quietly confident the Australian economy will stave off a recession."
"We've probably got another 75 basis points in rate cuts over the next two months," Sebastian added.
While international conditions are likely to remain difficult for some time, "the combination of expansionary monetary and fiscal policies now in place will help to cushion the Australian economy from the contractionary forces coming from abroad," the bank said in its quarterly policy statement.
Weaker economic growth and a slump in gasoline and commodity prices will slow inflation, which the bank aims to keep between 2 percent and 3 percent.