IMF Warns of Further Rate Hikes as Australia's Economic Growth Slows
The International Monetary Fund (IMF) has warned Australia's Treasurer Jim Chalmers to be more ambitious in tackling tax reform, urging him to shift the burden from income to consumption. The IMF also greenlit further interest rate hikes by the Reserve Bank of Australia (RBA), citing persistent inflation pressures and uncertainty around financial conditions.
The IMF's report notes that Australia's 'soft landing' has ended with a thud, thanks in part to weak productivity growth and the Middle East conflict. As a result, the RBA is expected to hike rates at its September meeting, following three increases so far. The IMF projects Australia's economic growth will slow to 1.9% in 2026 and 1.6% in 2027.
The report highlights the need for more rate hikes due to rising oil prices, hotter-than-anticipated July inflation figures, and hawkish commentary from the RBA. However, the RBA must balance its actions carefully, as sharp growth slowdowns could necessitate rate cuts if inflation appears to be coming under control.
The IMF also welcomed Australia's attempts to improve productivity but called for a more ambitious reform strategy. It recommended replacing stamp duty with a recurrent land tax and shifting the tax burden away from income and towards consumption.