Interest rate rise likely within six months!

Predictions of a return to higher interest rates sooner rather than later are heating up with a group of eminent economists tipping the first move could be within the next six months.

Key points:

• ANU's Shadow RBA board says 73pc chance rate rise will be needed in next six months
• Most analysts and traders are not expecting a rate rise until the middle of 2018
• Westpac's chief economist says the RBA may leave rates on hold until 2020

The Shadow Reserve Bank board at the Australian National University is made up of a panel of eminent economists, including two former RBA board members.

It has cited improving local and global economic factors as key reasons for the first cash rate rise since November 2010.

While no means a certainty, the ANU's nine member board sees the probability for a rate rise within six months at 73%, up 4 percentage points from the last vote in September.

Shadow board member Paul Bloxham, who is also HSBC Australia's chief economist, said the outlook for higher rates is underpinned by a strengthening jobs market and business conditions that could spill over into higher wages.

"What's becoming increasingly clear this month is that the shadow board thinks that the next move for interest rates is likely to be up and, more likely than not, it will be within the next six months," Mr Bloxham told the ABC.

"Our own view is that the economy will be in a position by the early part of next year where the RBA will probably consider that it will need to start normalising its cash rate."

The Reserve Bank board holds its October meeting tomorrow, with money markets predicting a 100% probability that the cash rate will remain steady at the historic low of 1.5%.

The meeting will be the first since the most recent national accounts showed solid economic growth in the June quarter and the latest employment figures from the Australian Bureau of Statistics revealed another sharp jump in the number of people in full-time jobs.

The cash rate began falling from its most recent high of 4.75% in November 2011 as the global economy slowed and the Reserve Bank sought to tame a high Australian dollar, which hit 110 US cents in July 2011.

It hits its current, record, low of 1.5% in August last year, with the bank sitting on its hands since then.

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