IMF Warns RBA May Need More Rate Hikes to Tame Australian Inflation

The International Monetary Fund (IMF) is warning that Australia's central bank may need to raise interest rates further to tame inflation. The Reserve Bank of Australia (RBA) aims to keep inflation within its 2%-3% target band, but the IMF says it should be prepared to hike rates as needed due to persistent underlying inflation pressures.

The IMF also warns that further spikes in global energy prices could fuel inflation expectations and warrant additional tightening by the RBA. 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.

Australian consumer prices rose more than expected in July due to fuel costs jumping, while core inflation also exceeded forecasts. Markets imply an 87% chance that 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.