The International Monetary Fund (IMF) has stated that further interest rate hikes in Australia would be justified if inflation remains elevated, following its annual economic review published on October 3, 2024. The IMF supported the Reserve Bank of Australia's (RBA) decision to keep the official cash rate at a 13-year high of 4.35 percent, despite calls for a reduction.
The IMF emphasized the necessity of a restrictive monetary policy to combat ongoing inflation, which is not expected to reach the target range of 2 to 3 percent until late 2025. The agency also criticized both state and federal government spending on cost-of-living measures, suggesting that a reduction in such expenditures could help lower aggregate demand and expedite a return to the inflation target.
While inflation has decreased from a post-pandemic peak of 7.8 percent to 2.7 percent, the IMF cautioned that this decline is partly due to temporary electricity subsidies and may not indicate a sustainable trend. The review highlighted persistent price pressures in sectors such as rents and insurance, which reflect ongoing demand-supply imbalances.
The IMF's recommendations come at a time when the Australian government has achieved consecutive budget surpluses through spending cuts while implementing measures to assist with living costs. The RBA has indicated that it will not consider lowering interest rates until there is clear evidence of a downward trajectory in inflation.
Source: perthnow.com.au