A steadily growing Australian economy would likely call for tighter monetary policy entailing two interest rate increases in 2011, the futures market has anticipated based on the Reserve Bank of Australia's economic outlook.

The said upward movement of interest rates will likely factor in the two scenarios likely to occur as the pace of economic growth continues in the near term.

According to the RBA, the two interest rate increases factored in by the futures market will likely strike a balance in the management of the money supply, the slower population growth, and the potential of lower unemployment rates that will likely coincide with the economy's boom.

Mining Boom

The RBA's so-called Blue Book, which presents the in-demand data and forecasts from the government's economists and analysis for the incoming government authorities estimated that the upsurge in the mining production will cause higher export growth and current account surplus for Australia.

It said that this calls for the tightening of fiscal and monetary policies so as not to affect the money supply and value of the Australian dollar, which is now on its highest level against the US dollar. Australia's dollar traded at 95.80 U.S. cents as of 4:29 p.m. in Sydney from 95.92 cents last week in New York, after earlier climbing to 96.25 cents, the strongest since July 2008.

''But with the labour market reaching full capacity and the strong incomes boost from the terms of trade feeding into demand, there are upside risks that will require coherence and consistency between the stance of monetary and fiscal policies,'' it said.

Barclays Capital analysts including Singapore-based David Forrester wrote in a note to clients. "By historical standards, only the Australian dollar positioning is approaching extreme levels."

The yield on New Zealand's 10-year bonds dropped below Australia's for the first time in two years as growth in the smaller nation slows.