Reserve Bank of Australia remains worried about inflation

11:19, May 13, 2010      

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Australia's domestic economy was expected to continue to benefit from Asia's demand for steel making resources, while pressures on supply could add to inflationary forces, a senior central bank official said on Thursday.

Reserve Bank of Australia (RBA) assistant governor Philip Lowe said, despite the recent setbacks on financial markets, the overall outlook for Australia was a "positive one".

"Our major trading partners are growing solidly, commodity prices are high and domestic income is likely to grow strongly over the year ahead," Lowe said at the Colonial First State Investment Forum in Sydney on Thursday.

"If this central scenario were to eventuate, a major challenge will be to expand the supply side of the economy so that demand can grow solidly without adding to inflation."

Lowe said the improved outlook for the nation's terms of trade, the ratio of the nation's export prices to import prices, was behind the bank raising its forecasts for economic growth.

In its quarterly statement on monetary policy released last Friday, the bank forecast economic growth to be in the range of 3.75 to 4.0 percent for a couple of years from 2011 as Australia's terms of trade regain the recent peak of 2007/08.

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