IMF Staff Advocates for Stricter Monetary Policy in Australia, According to Reuters

SYDNEY (Reuters) – The staff of the International Monetary Fund recently advised Australia’s central bank to implement further monetary policy tightening in an effort to return inflation to its target levels and maintain stable inflation expectations following an annual consultation.

According to a report that has yet to be submitted to the IMF Executive Board, the staff noted that the decline in inflation in Australia has been slow and core inflation continues to remain stubbornly high.

The staff indicated, "We recommend further monetary policy tightening to ensure that inflation returns to the target range by 2025 and to minimize the risk of de-anchoring inflation expectations."

Since May of last year, the Reserve Bank of Australia has raised interest rates by 400 basis points to an 11-year high of 4.1% in order to combat a surge in prices following the pandemic. However, the bank has maintained a pause for the past four months as policymakers aimed to protect the strong job growth in the labor market.

With inflation remaining persistently high, signs of consumer resilience, and housing prices potentially reaching record levels, many economists and market observers are betting that the RBA will implement another rate hike as early as next week.

Currently, the RBA projects that inflation will return to the target range of 2-3% by late 2025, a timeline that is considerably longer than that of other major economies.