RBA Cuts Growth Forecast to 3.25% for 2011-12

The Reserve Bank of Australia cut its growth forecast for the country Friday to 3.25 per cent from 4 per cent for 2011-12.

"A worse outcome in Europe would adversely affect the Australian economy, and underlying inflation would be likely to decline," the RBA said in its November Statement of Monetary Policy.

The RBA, which also forecast a rise in unemployment, said the risks to the global economy are skewed to the downside because of an expected moderate pace of China's growth in the coming years.

RBA estimated core inflation rate would range from 2 to 3 per cent until the end of 2013 while it is expected to reach 2.5 per cent by the middle of 2012.

The bank said the largest risk to growth forecasts for Australia are the sovereign debt and banking problems in the eurozone.

"The bank's central scenario continues to one in which the European authorities do enough to avert a disaster but are not able to avoid periodic bouts of considerable uncertainty and volatility," the RBA said.

Although RBA indicated it would remain open to another round of cash rate cuts, analysts said it would be unlikely since it just reduced on Tuesday the key lending rate by 25 basis points.

Treasurer Wayne Swan said the lower growth projection would affect the federal budget and hiring intentions of employers.

"What it means is that we will have less revenue than we expected when we did our budget forecasts back in May," Swan said.

He affirmed, however, that the government is determined to balance the budget and achieve a surplus by 2012-13, following previous plans. With these developments, Swan said the Labor government would likely update its budget forecast by the end of the year.