IMF Backs More Rate Hikes as Inflation Rises Above Target

The International Monetary Fund (IMF) has urged the Reserve Bank of Australia to raise interest rates further to combat inflation, which is currently above target. The IMF's latest report on the Australian economy notes that a 'soft landing' is no longer possible due to weak productivity growth and external factors such as the Middle East conflict.

The report projects Australia's economic growth rate will slow to 1.9% in 2026 and 1.6% in 2027, following three RBA rate hikes so far this year. The IMF also warned that further increases in energy prices could push inflation expectations up even higher, requiring more rate rises.

Australia's weak productivity growth has been a major contributor to the country's economic woes, with the nation's GDP per hour worked declining over the last four years. The IMF welcomed the federal government's attempts to improve productivity but called for a more ambitious reform strategy to boost competition and reduce over-regulation.

The report also urged the federal and state governments to cut back on spending amid rising debt levels, noting that the government would face difficulties in implementing 'difficult' NDIS reforms. The IMF also praised changes to property investor tax breaks in the federal budget as a step towards fixing the housing market.