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.
The "shadow" Reserve Bank board at the Australian National University cites 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 in six months at 73 percent, up four percentage points from the last vote in September.
Shadow board member Paul Bloxham, who is also HSBC Australia chief economist, says the outlook forhigher rates is underpinned by a strengthening jobs market and businessconditions 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 percent probability that the cash rate will remain steady at the historic low of 1.5 percent.
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 percent 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.
Mr Bloxham says the last piece of the "puzzle" for the Reserve Bank will be evidence of rising inflation and higher wages after a long period of sluggish wage growth.
Also critical, Mr Bloxham says, will be confirmation that the global economy is normalising a decade after the global financial crisis.
"If you look across the global economy at the moment we're seeing the most synchronised upswing in growth that we've seen since 2010," Mr Bloxham said.
However, Mr Bloxham believes the Reserve Bank will be cautious about the pace of rate rises given higher indebted households in Australia's east coast which might be exposed to higher mortgage repayments.
"So when the RBA gets going in lifting its cash rate we think they'll be quite slow. It will be quite a drawn out process of gradual normalisation over a long period," Mr Bloxham said.
The ANU's shadow board is at odds with other economists who see a rate rise as a most distant likelihood.
Westpac chief economist Bill Evans - who correctly predicted the RBA's dramatic rate cuts - believes the first rate rise might not be needed before 2020.