Glum RBA forecast points to more rate cuts The Reserve Bank of Australia: "There remains considerable uncertainty about the process of economic growth." The Reserve Bank has raised expectations this week's interest rate cut could be repeated within months after paring back its forecasts for economic growth. The bank's quarterly statement released on Friday downgraded its growth forecast for this year from 2.5 per cent to 2.25 per cent. It also warned of a gradual increase in unemployment for a year or so. "There remains considerable uncertainty about the process of economic growth rebalancing away from mining investment towards other sources of domestic demand and to exports," it said. ANZ chief economist for Australia Ivan Colhoun said it was the Reserve's "most downbeat view on the outlook for the Australian economy since the global financial crisis." On Tuesday, the Reserve Bank cut official interest rates by a quarter of a percentage point to 2.5 per cent, the lowest level since 1959. That pushed home lending rates towards the record lows registered during the global financial crisis. ANZ is now tipping the Reserve to follow up this week's rate reduction with another one in October. "The bias of risks still remains towards further interest rate cuts in 2014," Mr Colhoun said. Westpac chief economist Bill Evans said the Reserve's statement painted a very subdued picture of the economy. Unless further falls in the Australian dollar lift the economy, he believes two further rate cuts will be required to sustain growth as the mining boom fades. The Reserve's report said wages growth had slowed markedly, apparently contradicting claims in some quarters of rising business costs and falling productivity. "Softer conditions in the labour market have seen the pace of growth in wages decline to around its lowest rate in a decade," the report said. Combined with relatively strong growth of productivity, this has contributed to low growth of unit labour costs. The Reserve said economic growth would be "below trend" until the middle of next year before picking up in 2015. Mining investment is likely to decline noticeably over the next few years. Inflation is expected to remain in check until at least the end of next year. This suggests interest rates are likely to remain at very low levels for a long time. The behaviour of the Australian dollar will have a crucial bearing on the economy. The Reserve said the currency remained at a high level despite depreciating by about 15 per cent over the past few months. This should assist with the "rebalancing of growth in the economy" and further currency depreciation could "deliver above-trend growth sooner than forecast," the bank said. The outlook for the global economy had "softened" in recent months, the RBA said. Growth in Australia's most important trading partner, China, was "unlikely to pick up much, if at all, in coming quarters." The US economic recovery was proceeding at "a moderate pace" but the central bank remains wary about Europe where economic activity remains weak and "the risks continue to be tilted to the downside."