The Reserve Bank of Australia flagged further gradual increases in interest rates, but said it is unsure how quickly it will make the policy adjustments.
The comments are likely to raise doubts about whether the RBA will continue to raise rates at its next policy meeting Dec. 1, leaving economic data issued since the November meeting as crucial in determining the need for a hike in December.
"Looking ahead, members expected that if economic conditions evolved as expected, further gradual adjustment in the cash rate would most likely be appropriate over time, though the pace of the adjustment remained an open question," it said in minutes of its Nov. 3 policy meeting. In assessing the pace of interest-rate adjustments, the board is conscious of balancing risks, the RBA said.In the minutes, the central bank highlighted the job the strong Australian dollar will do in providing a headwind for the economy's recovery in 2010. "The rise in the exchange rate would constrain output and dampen inflationary pressure," it said.
The RBA also pointed to tight credit conditions for some borrowers as a constraint on growth. However, it warned "a lengthy period with interest rates at a very low level carried its own risks, particularly once the threat of serious economic weakness had passed".
In recent statements the RBA has highlighted consistently that the worst of the economic crisis is over. RBA Governor Glenn Stevens warned in a recent speech that the economy has limited spare capacity that will be used up quickly as the economy recovers.
The minutes echoed these sentiments saying: "Conditions in the global and Australian economies were significantly better than had been expected earlier in the year when the board had lowered the cash rate to 3.0%; the Australian economy was operating with less spare capacity than earlier thought likely," it said.