Borrowers are expected to be spared a Christmas interest rate rise after the central bank indicated that inflationary pressures are unlikely to ease much further.

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Reserve Bank of Australia (RBA) Governor Glenn Stevens told a federal parliamentary committee that inflation was expected to be “pretty close to where it currently stands” over the coming year, following a peak in commodity prices in 2010.

While the strength of the Australian dollar was having a dampening effect on prices, Mr Stevens said market forecasts of a rate rise in either February or March next year were realistic.

“For the period in which we are going into in the near term, I think that (the monetary policy setting) is about the right level,” Mr Stevens told the House of Representatives Standing Committee on Economics on Friday.

“At the moment, most commentators and market pricing do not anticipate any sort of near term change by us for quite some time and I think that’s probably a reasonable position for them to have, based on the information we have now.”

The RBA raised the cash rate to 4.75 per cent at its November board meeting.

Despite the record high terms of trade this year, the RBA has maintained its inflation target range of 2.5 per cent for 2011.

The consumer price index was 2.8 per cent in the year to the end of September.

Quizzed about whether the RBA had any means, other than monetary policy, to tighten spending without inflicting too much pain on vulnerable sections of the population, Mr Stevens said: “I don’t have another tool and it’s really up to other arms of policy to help manage these regional differences.”

He said the November rate rise was a pre-emptive decision and admitted that in the past the RBA had sometimes taken too long to raise the cash rate.

The central bank was now dealing with a “once or twice in 100 year” commodity boom, he said.

“We will probably move a little bit earlier than the moment when it’s clear that we have to,” he said.

“There is some risk that you do things you don’t need to do.” All major banks lifted their rates by a higher amount than the RBA this month after the most recent 0.25 per cent increase in the cash rate.

But Mr Stevens said borrowers were not paying “seriously higher interest rates than they should be” in the current economic environment. “I don’t think they are, because we’ve pretty much offset the change in the margins,” Mr Stevens told the committee.

Exports to China and India, where growth was running at around 10 per cent, were likely to play the biggest role in the years ahead, he said.

“But looking further ahead, in an economy with reasonably modest amounts of spare capacity, the terms of trade near an all-time high and the likely need to accommodate the largest resource-sector investment expansion in a century, it is pretty clear that the medium-term risks on inflation lie in the direction of it being too high, rather than too low,” the central bank governor said.

The Reserve Bank has an inflation target of two to three per cent. Given the increase in bank loan rates to a level higher than the RBA, monetary policy settings are “a bit above normal” now, he said.

“And that’s appropriate for the circumstances we think the economy is going to face.”