OECD expects interest rate hikes in 2017

The OECD expects the Reserve Bank will start raising interest rates next year as economic growth continues to strengthen.

The OECD expects the Reserve Bank will start increasing the cash rate next year. (AAP)

Make the most of low interest rates.

The Organisation for Economic Cooperation and Development expects the Reserve Bank will start increasing the cash rate next year.

And that's based on the OECD's latest growth forecasts that are less perky than the reality of Wednesday's national accounts which showed the annual GDP rate at 3.1 per cent as of March.

In its latest Economic Outlook, albeit dated by events, the Paris-based institution expects growth in calendar year terms will gradually strengthen towards three per cent in 2017.

That's well above its OECD growth average forecast of 2.1 per cent.

The projection envisages no further interest rate cuts by the Reserve Bank and assumes rate increases start in 2017, it says.

"Nevertheless, room for further rate cuts remains in the event of below par-growth."

Receding risks from a housing boom provide that leeway for monetary policy in the event of a new downturn.

The Reserve Bank cut the cash rate to a record low 1.75 per cent in May.

The OECD expects the jobless rate to have fallen to 5.4 per cent by 2017 compared with 5.7 per cent now, but does not expect that to generate strong inflationary pressures.

It says Australia's exposure to commodity market developments, particularly those linked to the Chinese economy, remains a key source of uncertainty and risk

"Uncertainties on future economic policy ahead of the federal election ... are also adding a degree of risk," the OECD says.

It again pushed its long held view that Australia should improve the efficiency of the tax system by making greater use of the GST and land taxes.

It also appears to be in agreement with Prime Minister Malcolm Turnbull in his focus on innovation, saying research and development, university-business linkages and financial support will help boost productivity.

OECD'S KEY ECONOMIC FORECASTS (per cent)

2016

GDP 2.6

CPI 1.4

Unemployment 5.7

2017

GDP 2.9

CPI 2.1

Unemployment 5.4