The Reserve Bank of Australia (RBA) has quashed hopes of a lift in wages and opened the door to even lower official interest rates, preparing Australian workers for an extended period of stagnant income growth that will stretch to the next election.

Releasing its last update to key forecasts for the year on Friday, the RBA downgraded a raft of predictions around economic growth, wages, housing investment and consumption.

Illustration: John Shakespeare Credit:

It believes the economy will expand by 2.25 per cent this year, down from the 2.4 per cent it forecast in August and well short of the 3.3 per cent it predicted in its monetary policy statement in November last year.

The bank last month cut official interest rates to a record low of 0.75 per cent, arguing it wants unemployment down to 4.5 per cent to lift inflation.