The official cash rate is likely to rise to 4 or 4.5 per cent by the end of next year, a leading economist says.
The Reserve Bank of Australia (RBA) board is meeting on Tuesday to decide whether to lift rates from a 49-year low of three per cent.
ANZ chief economist Saul Eslake says the RBA will lift rates either on Tuesday or next month.
The global financial crisis was “almost if not completely over”, and most parts of the economy no longer needed the support of very low interest rates, he told ABC Television.
If rates were left too low for too long, it could fuel a bubble in housing prices, he warned.
If the RBA left rates on hold on Tuesday, then banks would be unlikely to go it alone and raise their own rates because the cost of their funds was not moving much above the official cash rate, Mr Eslake said.
The RBA board, which will meet in Sydney, will announce its decision at 2.30pm (AEST).