Interest rate are set to rise, not immediately but soon, in the view of Prime Minister Malcolm Turnbull.

Speaking at the Melbourne Institute economic outlook conference, Mr Turnbull said his reading of statements from the Reserve Bank was that "rates are more likely to go up than down, clearly".

The Bank's cash rate has been 1.5 per cent since August, a record low.

"They are saying that a neutral cash rate would be 3.5 per cent," Mr Turnbull told the conference.

"What they are not saying is they are going to increase the cash rate to 3.5 per cent next month."

"Monetary policy remains accommodative and will stay that way for a while yet, but it means that rates are more likely to go up than down."

When the increase came, heavily indebted borrowers would be hit the hardest.

"Asset prices can move in two directions - down as well as up," Mr Turnbull said.

"It is important to be prudent. The banks and the Prudential Regulation Authority are doing their best to make sure of that."

"My sense is this risk is being well managed, but high levels of indebtedness with low levels of interest rates always pose a risk, particularly if there's an assumption of rising asset prices."

More to come

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