A lower inflation forecast means there is still plenty of scope for the Reserve Bank of Australia (RBA) to drop the official interest rate further, economists say.
The RBA has lowered its inflation and growth forecasts for the first half of 2012, because of uncertainty about Europe's debt crisis and its impact on domestic household and business spending.
HSBC chief economist Paul Bloxham said the central bank seemed to be keeping the door open on future rate movements, which would hinge on offshore developments.
'They've revised down their inflation forecasts, so it looks quite clear that the door is open for rate cuts if they are needed,' he said on Friday.
'It's certainly the case that the direction for rates will be determined by global outlook. The RBA still sees the downside risk, and we do too.
'We expect that they're going to be cutting a bit further in the first half.'
Mr Bloxham said that while European policy makers had taken some positive steps to resolve the eurozone debt crisis, there was still much to be done.
'I think it's true that they have achieved something, but the question is how much?' he said.
'We still have a whole lot to happen yet for Europe to resolve the structural problems it faces.'
ICAP senior economist Adam Carr said that while there was room for the RBA to cut the cash rate, it would take a more cautious approach in future.
'They re-iterated that they will only cut again if demand slows materially, and you can see from their forecasts that they're actually looking for it to accelerate,' he said.
'The way the RBA thinks now, that's it for rate cuts - we just have to watch Europe, and the growth data from here.
'On the balance of probability, it seems unlikely that they'll drop again.'
Mr Carr said that good signs from European markets and bond yields suggested things were getting better in the eurozone.
'There are good signs of a stabilisation, but that doesn't mean it can't flare up again,' he said.
'The RBA can't keep reacting to the fact that Greece might collapse, because that might not occur.'
