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Inflation pressures worry RBA

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The RBA has warned Australians that it may be forced to hike the official cash rate sooner rather than later in a bid to deal with the country’s two speed economy.

Speaking at a conference in Sydney yesterday, RBA assistant governor Dr Phillip Lowe said the economy was operating with a “relatively limited amount of spare capacity”.

Australia’s mining-fuelled economy is running out of space to grow, which could force the RBA to start increasing rates late this year or early 2011.

“For the next year I think we will be travelling along pretty much close to full capacity, but probably just a little bit under it,” Dr Lowe said.

The RBA choose to leave rates on hold in September for the fourth consecutive month, crediting uncertainty surrounding the global economic outlook, consumer spending and Australia's political situation for the Board’s decision.

However, with the election now finalised the RBA may be inclined to lift the cash rate as early as November.

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