IMF Warns Australia's Central Bank May Need Further Rate Hikes

The International Monetary Fund (IMF) has warned that Australia's central bank may need to raise interest rates further to tame inflation. The IMF stated that 'given persistent underlying inflation pressures and large uncertainty around whether financial conditions are sufficiently restrictive, the RBA should stand ready to hike rates as needed.'

Australia's economic growth is expected to slow over the next two years, with household spending and business investment proving more resilient than expected, keeping inflation elevated for longer. The IMF also noted that further spikes in global energy prices could fuel inflation expectations, warranting additional tightening by the RBA.

The Reserve Bank of Australia (RBA) aims to keep inflation within its 2% to 3% target band. Markets imply an 87% chance the RBA will raise the 4.35% cash rate by 25 basis points when it meets at the end of this month, and reach 4.85% by early 2027.