Australia's central bank slashes growth forecasts

SYDNEY — Australia's central bank slashed its growth forecasts for this year and next and left the door open for further interest rate cuts to prop up the slowing economy.

The Reserve Bank of Australia now expects gross domestic product to grow 1.5 percent this year, compared with an earlier forecast of 2 percent, it said in a quarterly policy statement released Monday. The bank estimates growth of 1.75 percent in 2009, down from its previous forecast of 2.5 percent.

"Given the weakness in the global economy, prospects are that growth in domestic spending and activity will remain below trend for some time," the central bank said.

The bank has already cut interest rates three times in as many months, with the cash rate now at a five-year low of 5.25 percent. The bank said it made "unusually large" cuts in the cash rate in October and November amid fears growth would slow in the wake of the global financial turmoil.

Future decisions about the cash rate will try to strike a balance between avoiding an "unduly sharp" weakening in the economy and the need to control inflation, which the central bank expects to fall in coming months, it said.

The bank's board is scheduled to meet again next month.

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