The recent slide in the iron ore price has prompted ANZ to cut its economic growth forecast for Australia, but the bank is still expecting the RBA to begin lifting rates next year.
ANZ's economists are now predicting slightly softer growth in 2015 and 2016 of 2.9 per cent and 3.2 per cent respectively, down a quarter of a percentage point from its previous forecast.
"Lower commodity prices will weigh on profits and wages, while also reducing both company taxes at the federal government level and royalties at the state level," ANZ economists led by Warren Hogan wrote in a note..
"They will in turn constrain consumer spending and business investment, and lead to an extended period of weaker than usual growth in public demand.
"Importantly, these revisions represent a delay in the return to trend growth rather than a change in the trajectory of the Australian economy."
As growth slows and amid little sign of inflation pressure, the RBA can keep the cash rate lower for longer, ANZ says, following a common global theme on monetary policy
"We still expect a new tightening phase to commence next year, but have pushed back the timing of the first rate hike from May to November," ANZ says. "We expect 100 basis points - or one percentage point - of rate hikes over the following year to take the cash rate to 3.5 per cent by the middle of 2016."
A number of economists have been pushing back their forecasts for the first RBA rate rises next year, but consensus is still that the central bank will begin tightening monetary policy in 2015.
HSBC chief economist Paul Bloxham said despite signs of growth slowing and the weaker labour market the next move by the RBA was still more likely to be a rate rise than a cut.
"We still have a rate hike pencilled in for June 2015, but the clear risk is that it hold steady for longer," Mr Bloxham said on Friday.
Taking into account the impact of its interest rate revisions, ANZ said fair value for the Australian dollar was about 79 US cents, down from 85.14 US cents on Friday morning.
The bank kept it 82-US cent forecast for end-2015, but said either a rate hike from the US Federal Reserve, or a further step down in key commodity prices could trigger a furtherdowngrade to its forecasts.
ANZ recently revised its iron ore forecasts down from an average of $US101 a tonne to $US78 in 2015 and from $US95 to $US85 in 2016.
"This has been the primary driver of a cut to our terms of trade forecast in 2015 from -2.7 per cent to -7.4 per cent - a cut which has shaved more than one percentage point off nominal GDP growth, which we now expect to be only 3.1 per cent in 2015, picking up to 5.5 per cent in 2016," the bank said.
