IMF Backs More Rate Hikes as Australia's Economy Faces Slowdown

The International Monetary Fund (IMF) has given the Reserve Bank of Australia (RBA) the green light to hike interest rates, citing a need for more rate rises to combat inflation and slow economic growth.

According to the IMF's latest report on Australia's economy, the 'soft landing' identified in February has hit with a thud due to weak productivity growth and the Middle East conflict. The IMF projected that the country's economic growth will slow to 1.9% in 2026 and 1.6% in 2027.

The RBA is expected to follow the Federal Reserve's lead in hiking rates at its September meeting, with rising oil prices and hotter-than-anticipated inflation figures contributing to the decision. The IMF also warned that further increases in energy prices could push up prices even more and lift inflation expectations, warranting more rate rises.

The IMF welcomed the federal government's attempts to improve productivity but called for a 'more ambitious reform strategy' to boost competition, reduce over-regulation, and rebalance the tax system. It recommended replacing stamp duty with a recurrent land tax and shifting the tax burden away from income and towards consumption.