The Reserve Bank of Australia (RBA) on Friday cut its inflation and GDP growth forecasts while saying it sees no change to the record low cash rate of 2.5 percent.
In its latest quarterly Monetary Policy statement, the RBA said it expects a GDP growth of 2.5 percent for this calendar year, and this is expected to rise towards 3 percent for the financial year to June 2015.
The central bank expected the unemployment rate to remain elevated before it gradually declines in 2016. The unemployment rate rose sharply in July to a 12-year high of 6.4 percent.
The Consumer Price Index (CPI) was forecast to rise 2 percent in the year to December 31, and between 1.75 percent to 2.75 percent for the next financial year to June 2015.
"The key uncertainties for the domestic economy continue to be centered on the timing and extent of the expected decline in mining investment, the associated rise in resource exports and the further strengthening in non-mining activity," the RBA said.
"While this 'transition' has been unfolding for some time, helped in part by the very low level of interest rates, there is no guarantee that the rebalancing of spending will be a smooth process."
The RBA said resource exports will continue to provide "an above-average contribution to annual GDP growth," estimating the level at 1 percentage point over 2015 and 2016.
Growth in China, Australia's biggest trading partner, has picked up, driven in part by "modest stimulus" implemented by the authorities who are likely to come close to their 7.5 percent target this year, the RBA noted.
"A key uncertainty relates to the possibility that continued weakness in the property market will weigh on growth and may adversely affect financial stability" in China, it said.