The cash rate could be cut to yet another record low as early as August after the Reserve Bank slashed its inflation forecasts.
The RBA cited surprisingly low consumer prices as a reason for its rate cut on Tuesday to an all-time low of 1.75 per cent.
Another could be on the way as the RBA now expects underlying inflation to remain near the lower limit of its two to three per cent target band throughout 2016.
Underlying inflation is forecast to remain at around one to two per cent this year, and rising to only 1.5 to 2.5 per cent in the next two years, according to the RBA's quarterly statement on monetary policy.
The RBA had previously forecast inflation to be within the target band from 2016 through to 2018.
Most economists doubt the May rate cut was a one-off, forecasting another in August after the third quarter inflation report.
ANZ and Royal Bank of Canada warn a June move shouldn't be completely discounted.
The ... market has one more rate cut fully priced by February next year.
UBS economists said the RBA's statement was "extremely dovish" and warned further easing beyond August is possible.
"Key to the cash rate outlook will be the extent to which a lower Australian dollar ultimately adds some upward pressure to inflation, as well as how quickly demand picks up in response to lower rates," they said.
The RBA said slow wage growth, stiff retail competition, softer housing market conditions and lower fuel prices were keeping a lid on costs of living, and the outlook for prices was a key uncertainty.
"Despite above trend growth in economic activity and improvements in labour market conditions over the past year, it is possible that domestic cost pressures may weaken further, and so inflation may not pick up as expected," it said.
The RBA also singled out the Australian dollar as another risk to the inflation outlook.
While the currency is expected to remain around 75 US cents for the next two years, it is vulnerable to any shocks to China's growth outlook, changes to commodity prices or policy decisions from major central banks.
"If therefore represents a significant source of uncertainty for the forecasts of inflation, as well as for the outlook for growth in activity," the RBA said.
Over the past year, the central bank had repeatedly said low inflation left it scope to cut rates, but dropped the reference in the statement on Friday.
"That is not mentioned here, at least in any sort of forward-looking fashion, but it doesn't need to be," JP Morgan economist Ben Jarman said.
A fundamental change in the RBA's thinking on inflation meant the cash rate could eventually probe below 1.5 per cent, he said.
