Despite the central bank’s respite on raising interest rates this month, borrowers can still expect two more rate rises in 2010, says an economist.

That’s the bad news.

The good news is the cash rate will hold steady at 4.25 per cent for the next 10 to 15 years, as Australia moves into a new era of more moderate inflation, says Herston Economics chief economist Clifford Bennett.

Mr Bennett said the Reserve Bank of Australia (RBA) would raise the cash rate only twice in 2010 as inflation would be kept in check by interest rates that - despite rises in late 2009 - were still at multi-decade lows.

He said competitive pressures would ensure companies would raise productivity rather than pass on price increases even when the economy moved to a stronger growth phase.

Mr Bennett was the only economist to publicly tip the RBA to hold the cash rate steady at 3.75 per cent at its board meeting on Tuesday.

He said rate movements in 2010 would be modest because the current cash rate was already restrictive for inflation.

“In the first three rate hikes last year a lot of the (RBA) statements were around the discussion of how strong growth is going to be,” Mr Bennett told AAP.

“The discussion now is that the new normal for interest rates is … around 3.5 per cent.

“To me, we’re already moving into a restrictive policy as we are.”

Mr Bennett said the RBA would raise the cash rate by 25 basis points each in April and July as the central bank adjusted to a less spectacular run of economic data.

While other countries struggled through last year’s economic crisis, Australia printed a series of better than expected jobs, retail and economic growth data that put it ahead of its G20 partner nations.

The RBA became the first G20 central bank to hike interest rates during the financial crisis. It raised the cash rate from a 49-year low of three per cent to 3.75 per cent in a series of 25 basis points increases each in October, November and December last year.

Mr Bennett said rates would remain low for next 10 to 15 years because the global financial crisis changed the nature of competitive price pressures, a key driver of inflation.

“The capitalist system we’re living in today is for the first time truly one of high competitive price pressures, so there is less of a role for central banks,” he said.

“Companies will increase productivity to avoid passing along price pressures to their customers.”

However, National Australia Bank (NAB) forecasts the RBA to lift the cash rate to 5.5 per cent by the end of 2011 because of growth-induced inflation pressures.

The RBA’s decision on Tuesday to keep the cash rate steady surprised most market economists who had expected a 25 basis point increase to four per cent.

In its accompany statement issued after board meeting, the RBA said it was waiting for more information on the effect of its rate rises in late 2009 on the economy.

AAP