A leading economist has predicted interest rates will peak at around 2.5 per cent in the first half of next year.

It comes as the Reserve Bank of Australia raised the official cash rate for the second time in 35 days by a whopping 50 basis points to 0.85 per cent.

It’s the biggest increase in 22 years.

Chief economist at AMP, Shane Oliver, predicts there will be “a few more hikes” before the end of the year.

“In think we’ll probably get to around 2 per cent, maybe a little bit above that, maybe 2.5 per cent, but I think that will be it,” he told Scott Emerson on 4BC Drive.

“I don’t think interest rates will go back to anywhere near where they were in the late 1980s or early 90s.”

Mr Oliver added he expects the current cycle of lifting interest rates will “all be over within 12 months”

“This is not going to be a long tightening cycle,” he said.

“I think the pressure will come off inflation, it will come off the economy and that will enable the Reserve Bank to have some breathing space.

“So we’ll reach that peak probably in the first half of next year.”

Press PLAY below to hear the full interview

Image: iStock by Getty