The Reserve Bank of Australia (RBA) on Friday lifted its medium-term forecasts for inflation and economic growth and flagged the need for higher interest rates.

"The cash rate remains at a low level, and a further gradual lessening of monetary stimulus is likely to be required over time," the bank said in its November statement of monetary policy.

Following a speech on Thursday in which the bank's governor Glenn Stevens said the economy had experienced only a mild downturn, the statement increased expectations of an interest-rate rise in December to follow rises in October and November.

The RBA revised sharply higher its economic growth forecasts, predicting Australia's gross domestic product would grow 3.25 percent in the fourth quarter of 2010 from a year earlier, up from an August forecast of 2.25 percent.

The central bank also revised up its forecast trough in underlying inflation to 2.25 percent by the end of 2010, up from its previous forecast of a 2 percent trough. Core inflation is currently 3.5 percent.

A slowing in wages growth and lower import prices will assist to moderate core inflation, the RBA noted.

The forecasts paint a brightening outlook for Australia's 1.1 trillion (US$1 trillion) economy, setting it apart from other major economies, which continue to keep interest rates near zero.

(Xinhua News Agency November 7, 2009)