IMF says Australia may need further interest rate rises to tame inflation

The International Monetary Fund (IMF) has warned that Australia's central bank, the Reserve Bank of Australia (RBA), may need to raise interest rates further to combat persistent inflation. According to the IMF, inflation is expected to remain elevated this year before gradually decreasing towards the central bank's target range of 2% to 3%.

While Australia is expected to experience slower economic growth over the next two years, household spending and business investment may prove to be more resilient than anticipated, keeping inflation levels elevated for a longer period. The IMF cautioned that rising global energy prices could further fuel inflation expectations, necessitating additional rate hikes by the RBA.

Currently, markets predict an 87% probability that the RBA will increase the cash rate by 25 basis points when it meets at the end of the month, with the rate potentially reaching 4.85% by early 2027. In July, Australian consumer prices increased more than expected due to a surge in fuel costs, and core inflation also surpassed forecasts, heightening the risk of another interest rate hike.