The central bank's revision of its economic forecast paints a slightly bleaker picture for economic growth but inflation is not a problem.
The Reserve Bank of Australia, in its latest Statement on Monetary Policy, has forecast economic growth to be slightly slower, headline inflation to be lower and unemployment to rise a little then fall.
The RBA warned that the largest risk in its forecasts was the sovereign debt and banking problems in Europe.
"The bank's central scenario continues to be 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.
"A worse outcome in Europe would adversely affect the Australian economy, and underlying inflation would be likely to decline."
On Tuesday, the RBA cut the cash rate by 25 basis points to 4.5 per cent, citing continued uncertainty in Europe and easing inflationary pressures locally.
AMP Capital Investors chief economist Shane Oliver said inflation was the main focus.
"On an underlying basis, it will stay comfortably within the target range for the forecast period, out to December 2013," he said.
"To a large degree this statement is consistent with what they've just done, which is to cut interest rates."
Dr Oliver said the statement suggested that if the RBA were to change the cash rate it would be downwards.
"This statement is more dovish than the one issued three months ago, reflecting the reality of the global risks and greater uncertainty of global domestic conditions and also more mixed readings in recent times.
"We've also seen downward revisions to economic growth forecasts. I think they are all suggestive of a more dovish stance from the Reserve Bank."
Dr Oliver said the RBA would be taking a wait-and-see approach to anymore rate cuts.
"The revised inflation forecast certainly provides more scope for more rate cuts if the Reserve Bank judges that's necessary to provide a boost to growth.
"There's nothing that suggests a sense of urgency. There's a good chance the Reserve Bank will sit pat at its December meeting.
"Overall, the more dovish tone in the statement would be consistent with more rate cuts but probably not until February or March next year."
Commonwealth Bank currency strategist Joseph Capurso said the RBA's monetary policy statement had had impact little on Australian markets.
"The Aussie's really been moved up and down by investor sentiment related to Europe rather than interest rate cuts," he said.
"Markets had already factored in that the RBA would be cutting their GDP (gross domestic product) and inflation forecast, at least in the near term, but they haven't changed their long-term one that much."
On Friday, the RBA announced an inflation outlook of 2.5 per cent in 2012, half a percentage point below its forecast three months ago.
Concern around Europe's unresolved debt crisis was key to the RBA's lower inflation outlook, Mr Capurso said.
"The RBA identifies Europe as the major downside risk to the Australian economy, so if it were to get a lot worse over there, then rate cuts would be back on the agenda," he said.
