The Reserve Bank is sounding more upbeat about jobs growth and the housing market, which means another interest rate cut is looking unlikely.
In its quarterly statement on monetary policy, the RBA said that the unemployment rate will stay in its recent range between six to 6.25 per cent, and then gradually decline over the next few years.
In its previous forecasts issued in August it said that the unemployment rate will peak below 6.5 per cent.
"Leading indicators of labour demand, such as job advertisements and vacancies, have been on an upward trend and point to further employment growth over coming months," the RBA said.
The bank also slightly reduced its forecasts for inflation, which it says will give it plenty of scope to cut the cash rate if is needed.
The RBA said small downward revision to its economic forecast are because that some large liquefied natural gas (LNG) projects will start production a bit later than previously thought.
The central bank is optimistic about the housing market, saying it will ease only a little from its recent record highs.
"The high level of residential building approvals since the start of the year is likely to translate into further increases in dwelling investment, albeit at a gradually moderating rate," the RBA said.
Westpac chief economist Bill Evans is expecting the cash rate to stay unchanged at two per cent over the course of 2016.
"The bank's forecasts in this statement are consistent with it expecting that to be the outcome as well," he said.
"The key appears to be an ongoing improvement in employment growth which will boost consumer confidence and lift the pace of household spending."
JP Morgan Australia chief economist Stephen Walters said it will take a lot to get the RBA over the line for another interest rate reduction.
"It seems Board members really are reluctant cutters," he said.
"Even soggy (economic) activity prints from here, then, likely would not be enough to trigger a near term move."
Mr Walters said another rate cut is also looking less likely because it appears the economy has been strengthening over the September quarter.
THE RBA'S VIEW ON THE ECONOMY
* Growth in year to Dec 2015 of 2.25 pct, down from 2.5pct
* Growth in year to June 2016 of 2-3 pct, unchanged from August's forecast
* Growth in year to June 2017 of 2.75-3.75 pct, down from 3-4 pct
* Inflation in year to Dec 2015 of 1.75 pct, down from 2.5 pct
* Inflation in year to Dec 2016 of 2-3 pct, unchanged
* Unemployment to stay between six and 6.25 pct over the next year
(Forecasts based on assumption $A remains at 72 US cents)
