IMF Warns RBA May Need Further Rate Hikes to Tame Inflation

The International Monetary Fund (IMF) has warned that Australia's central bank may need to raise interest rates further to combat inflation. The global lender said that persistent underlying inflation pressures and uncertainty around financial conditions necessitate a readiness to hike rates as needed.

Australia's economic growth is expected to slow over the next two years, but household spending and business investment could prove more resilient than anticipated, keeping inflation elevated for longer. This could warrant additional tightening by the Reserve Bank of Australia (RBA), which aims to keep inflation within its 2% to 3% target band.

The IMF's statement comes as Australia's central bank navigates the challenge of bringing inflation under control without tipping the economy into a sharp downturn, a balancing act many economies continue to grapple with in the post-pandemic era. Markets imply an 87% chance that the RBA will raise the current 4.35% cash rate by 25 basis points when it meets at the end of this month.