The Reserve Bank of Australia said its previous rate cuts were starting to have some of the expected effects on economic activity "though the exchange rate remains higher than might have been expected, given the observed decline in export prices and the weaker global outlook."
The Reserve Bank said the full effect of its earlier rate cuts - the bank has cut rates by 175 basis points since September 2011 - are yet to be observed but a return to the very strong growth rates in private consumption is unlikely and investment outside the resources sector is expected to remain relatively subdued while public spending is forecast to be constrained.
Economic growth in Australia has still been running close to trend, led by strong capital spending in the resources sector, but "looking ahead, recent data confirm that the peak in resource investment is approaching," the Reserve Bank said in a statement, quoting Governor Glenn Stevens.
It added that risks to the global economic outlook were still on the downside, largely due to Europe's debt crises but also due to uncertainty over the course of U.S. fiscal policy.
Australia's Gross Domestic Product expanded by 0.6 percent in the second quarter from the first for a n annual growth rate of 3.7 percent, down from 4.3 percent.
Inflation is expected to rise above the bank's target over the next couple of quarters due to an introduction of carbon taxes but inflation should then remain consistent with the bank's target over the next one to two years. In the third quarter, the inflation rate rose to 2 percent from 1.2 percent.
The Reserve Bank targets inflation of 1-3 percent.
Last month the Reserve Bank surprised most observers by keeping rates steady, saying the outlook for the global economy was looking a bit more positive.
But since then it has cut its growth forecast due to a slowdown in investment by mining companies.