The Reserve Bank of Australia (RBA) last lifted its official cash rates in November, and since then has kept them on hold at 4.75 percent at each of its monthly meetings on monetary policy.

But the minutes from its May 3 meeting reveal the bank noted that underlying inflation had troughed and was expected to increase over time -- putting it at the top of the bank's 2.0-3.0 percent target band over the next few years.

"Members judged that if economic conditions continued to evolve as expected, higher interest rates were likely to be required at some point if inflation was to remain consistent with the medium-term target," the bank said.

The markets had been expecting a less dovish assessment and the comments pushed the Australian dollar around a third of a US cent lower to US$1.0549.

The RBA said the global economy had grown solidly in early 2011 despite the impact of the Japanese earthquake and tsunami, with growth in China and elsewhere in emerging Asia strong.

And this above-trend growth in the world economy was boosting commodity prices, thereby supporting income growth and investment in Australia's booming resources sector, it said.