Australia's central bank is likely to leave the benchmark interest rate unchanged at 4.75 percent when its board meets to review its policy on Tuesday. However, analysts widely expect the bank may to hike the rate in the next quarter to tame rising inflationary pressures.

The Reserve Bank of Australia, or RBA, had strongly indicated in its quarterly financial statement, that it may raise the key interest rate in the near-term. The central bank repeated its warning in the minutes of the May 3 monetary policy meeting released last month.

Meanwhile, many economists pushed forward their rate expectations to August from June after the release of GDP figures last week. Australia's economy shrank 1.2 percent in the first quarter, the most since 1991 due to widespread natural calamities at the end of December and in early January.

Though the bank is unlikely to alter its policy stance at tomorrow's meeting, economists expects the session to be truly "live." "Indeed, the cash rate is going up some time soon," said Helen Kevans, an economist at J.P. Morgan Australia.

Last week's GDP "shock" means the RBA's growth forecasts need some massaging but, if anything, officials probably now expect even stronger activity in 2012, Kevans added.

According to a survey by the TD Securities and the Melbourne Institute, inflation eased in May, as a fall in travel costs offset an increase in fruit and vegetable prices. Annette Beacher, Head of Asia-Pacific Research at TD Securities expects inflation to accelerate into 2012, with the terms of trade continuing to rise and ongoing lack of spare capacity in the labor market.

Meanwhile, official estimates showed that inflationary pressure rose more than expected in the first quarter of 2011, led by higher costs of food and fuel. According to the Australian Bureau of Statistics, inflation jumped to 1.6 percent sequentially in the first quarter of 2011 from 0.4 percent in the final three months of 2010.

The bureau said that it was the largest quarterly increase in the consumer price index since the June quarter of 2006.

The central bank's last policy change was in November when the benchmark cash rate target was lifted by a quarter point to the current level.

Regarding the rate outlook, Beacher said the bank may signal that it can comfortably remain on the sidelines for several months. "We did not subscribe to the 'June is live' rhetoric that emerged early in May, as many members of the RBA Board remain clearly concerned about the two-speed economy," the economist said.

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