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November 09 2012, 1:41PM

Further interest rate cuts may be less likely after the Reserve Bank of Australia revised up its inflation forecasts.

In its Statement on Monetary Policy released on Friday, the Reserve Bank of Australia (RBA) revised up its forecasts for inflation to mid-2013, due to a larger-than-expected spike in prices in the September quarter.

Consumer Price Index (CPI) inflation is now expected to reach 3.25 per cent by June 2013, above the RBA's target range for annual inflation of two to three per cent.

Underlying inflation, the RBA's preferred measure, is expected to reach 2.75 per cent in the same period.

At the same time, it forecast that domestic growth would be lower, due to weaker investment from the mining industry.

Forecasts for gross domestic product (GDP) growth were cut to three per cent in 2013, down from an expected 3.75 per cent in 2012.

The RBA had previously forecast GDP growth of 2.75 to 3.25 per cent in 2013.

HSBC chief economist Paul Bloxham said higher inflation meant the RBA may reduce the chance of further interest rate cuts.

"With the impact of the high exchange rate starting to wear off on inflation, that might leave them less room to move on rates," Mr Bloxham said.

The RBA decided to keep the cash rate on hold at 3.25 per cent at its November board meeting but futures markets are pricing in another two 25 basis point cuts by mid 2013.

However, JP Morgan Australia chief economist Stephen Walters said he expects more rate cuts to come.

"The Australian dollar...remains uncomfortably high, particularly relative to lower bulk commodity prices, and the leading indicators of employment have sagged," he said.

"That said, yesterday's decent jobs report for October hints that these might overstate the extent of the weakness to some extent."

Mr Walters said JP Morgan is sticking by its forecast of a cash rate cut in December and another one at the first RBA board meeting of the year in February.

"We learned on Tuesday that RBA officials still can be quite reactive, particularly to the most recent inflation data, as well as pre-emptive, as we believe they were in October," he said.

"The timing of the rate moves from here, then, likely will remain difficult to predict, and dependent on the most recent prints of the domestic and offshore data."