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Lavish budget may bring forward rate rise

A group of academics and economists believe it would make sense for the Reserve Bank to raise the official cash rate this week faced with a potentially generous budget on May 8.

If they prove correct, it would put a major dent in the Turnbull government's budget preparations - likely to be the last before the next federal election - and temper the promise of personal tax cuts.

"An expansionary budget will heighten the need for an interest rate increase," Timo Henckel, a lecturer at the Australian National University's Research School of Economics, warns.

Dr Henckel chairs the ANU's "RBA shadow board", which includes academics, economists and former central bank board members.

The "shadow board" attaches a 51 per cent probability for the need to raise the cash rate when the central bank board meets on Tuesday compared to 49 per cent who still believe holding the rate steady is the appropriate setting.

"The shadow board find that a rate increase of 25 basis points is most likely the best setting, if only by a small margin," Dr Henckel said in a statement on Monday.

Even if there is not a rate rise this week, as financial markets predict, it puts a 76 per cent chance of it happening in the next six months.

The cash rate has stood at 1.5 per cent since August 2016.

The last time there was an increase in the rate was in November 2010.

Reserve Bank governor Philip Lowe has repeatedly said the next move in the cash rate is likely to be up but has indicated there is no urgency.

Financial markets are not predicting an interest rate rise until the middle of next year.