After eight years with no movement, the next move for interest rates is up, Reserve Bank governor Philip Lowe says.
The RBA's cash interest rate currently sits at 1.5 per cent.
However Dr Lowe said the outlook for jobs was good and a wage rise could be around the corner.
His optimism comes with a warning about the possible impact of a global trade war and the need to be prepared in case of a recession.
Dr Lowe told a parliamentary hearing in Canberra on Friday that further progress in growing the economy, which is ticking along at three per cent, is expected.
"If we continue to make progress, you could expect the next move in interest rates to be up," he said.
Uncertainty over global trade - particularly the stoush between the US and China - could outweigh positive momentum in the global economy, he added.
A return to budget surplus would help build future capacity to respond to a recession, he said, adding: "I'm a big believer in insurance."
The pick-up in wages growth is expected to be gradual, but the labour market was tightening which could lead to employers competing for workers and pushing up pay packets.
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