TOWNSVILLE, Australia, June 4 (Reuters) - Australia's central bank sees scope to ease monetary policy further, but believes the domestic economy is well placed for expansion toward the end of this year, central bank chief Glenn Stevens said on Thursday.
But Stevens, speaking at a conference, added a cautious note, forecasting weaker consumer spending over the next few months, as government stimulus waned and unemployment grew, and as business investment continued its rapid decline.
"It is likely that activity has remained subdued in the June quarter," he said in a speech.
"Our expectation remains that the economy will be well placed for expansion towards the end of this year," he said, adding that the pace of expansion would be fairly gradual at first.
Australian policy makers are treading a careful line, trying not to overstate the prospects of recovery after the economy unexpectedly grew in the first quarter and the country became one of the very few developed nations to have avoided a recession.
Australia's outperformance owes much to aggressive action from the Reserve Bank of Australia, which cut its key cash rate by 425 basis points in just seven months, taking it to a record low of 3.0 percent.
The centre-left Labor government has also weighed in over the same period, announcing record stimulus packages totalling more than A$52 billion ($42.9 billion).
Stevens said current monetary policy aimed to cut borrowing costs and support demand but the central bank would be careful not to encourage unsustainable debts.
"It would be counterproductive, though, if further reductions in interest rates induced a large number of marginal borrowers into debts they could service only at unusually low interest rates," he said.
"This is a reason for care, both by the Reserve Bank and private lenders, and I note that lenders are being a bit more conservative on non-price loan conditions for households." ($1=1.212 Australian Dollar)
(Reporting by Cecile Lefort, writing by Mark Bendeich)