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The Reserve Bank of Australia is predicting modest increases in inflation and gross domestic product, along with a moderation in joblessness.
The RBA issued its quarterly Monetary Policy Statement Friday in Sydney, saying that if the forecasts materialize, more interest rate hikes are possible.
The central bank forecasts underlying inflation will ease from about 3.25 percent through 2009 to 3.0 percent by mid 2010 and 2.5 percent by the end of 2010 before rising to 2.75 percent by the end of 2011 and into 2012.
The bank previously forecast 2.25 percent inflation by the end of 2010
The figures generally fall within the RBA's target band for inflation of between two and three percent.
Gross domestic product is forecast to rise by 3.25 per cent through 2010 and 3.5 per cent through 2011.
"Looking forward, if economic conditions gradually strengthen as expected, it is likely that monetary policy will need to be adjusted further over time to ensure that inflation remains consistent with the target over the medium term," the RBA said in its February Statement.
The RBA surprised most analysts this week by leaving interest rates unchanged and 3.75 percent, after three straight months of 25-basis-point increases
In its statement, the RBA also said it expects solid employment growth over coming months and warned of limited spare capacity in the economy.
The RBA said the unemployment rate is now forecast to decline modestly through mid 2012. The bank said joblessness likely peaked at 5.75 percent.
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