The Times Australia

The Times World News
The Times

IMF endorses RBA high interest rates and warns a further hike might be needed if the inflation fight stalls

  • Written by Michelle Grattan, Professorial Fellow, University of Canberra

The International Monetary Fund has endorsed the Reserve Bank’s tough monetary policy – while warning rates might need to rise again if the fight against inflation stalls.

A report after IMF staff visited Australia, issued on Thursday, says the economy is resilient but faces challenges, including significant risks from abroad.

“Growth has slowed; while inflation is retreating from its peak, it remains elevated as demand-supply imbalances persist particularly in sectors like rents, new dwellings and insurance,” the report says.

A “modest” recovery is predicted for next year, taking growth from 1.2% in 2024 to 2.1% for 2025, marked by improvement in real incomes and resilient labour markets. But growth “will remain below its potential rate until 2026, when it is forecast to converge to 2.3%”.

“Near-term policies should continue to focus on reducing inflation while nurturing economic growth, ” the IMF says.

The Reserve Bank’s “continued restrictive monetary policy stance aimed at combating persistent inflation is appropriate”.

Underlying inflation is expected to sustainably return to the RBA’s target range of 2-3% at the end of next year, “with underlying price pressures easing only slowly”.

“Should disinflation stall, policies may need to be further tightened while preserving targeted support to vulnerable households amid rising living costs,” the report says.

It notes “underlying price pressures remain elevated”, pointing to rents, new dwellings, and insurance".

“While acute demand and supply imbalances in the housing market have begun to ease, national house prices have surpassed pandemic-era peaks and the momentum persists, with rents also rising significantly.”

“Addressing the housing affordability challenges requires a holistic approach to tackle the continued supply shortfall.”

The IMF stresses the need for improving productivity, with enhanced competition and innovation. AI technology should be leveraged “responsibly” and the climate transition navigated strategically.

“Efforts to rejuvenate Australia’s productivity growth, including through competition policy, should be prioritised, focusing on reforms across capital and labor markets.”

The IMF welcomes the second consecutive surplus, for 2023-24, announced this week.

It also backs the proposed new Monetary Policy Board for the Reserve Bank, which is so far blocked because of a lack of parliamentary support. The IMF says the policy is in line with international best practices. It would “bolster central bank operational autonomy and enhance monetary-fiscal policy synergies”.

The IMF advocates tax reforms to promote efficiency and fairness. They should reduce “reliance on direct taxes and high capital costs that hinder growth.

"Tax breaks, including from capital gains tax discount and superannuation concessions, could be phased out to generate a more equitable and efficient tax system.”

The IMF says coming environmental and demographic changes “will put structural upwards pressures on government spending.

"Expenditure reforms should therefore aim to enhance spending efficiency and sustainability,” the IMF says.

Treasurer Jim Chalmers said the IMF had endorsed the government’s economic management.

“The government’s primary focus is to get on top of our inflation challenge without ignoring the risks to growth and the IMF has backed this strategy.”

Read more https://theconversation.com/imf-endorses-rba-high-interest-rates-and-warns-a-further-hike-might-be-needed-if-the-inflation-fight-stalls-240443

As the anniversary of the Voice vote nears, the high costs of Albanese’s misjudgement are clear

This time a year ago, we were on the cusp of the October 14 Voice referendum. Most players were al...

Times Lifestyle

Warning to Grey Nomads - Pop Top Caravan Hidden Risks

To pop or not to pop… that is the question. Hybrid pop top caravans are a popular choice for many caravanners, but ar...

How to Ensure You Don’t Miss Out on a Ticket for the Next Huge Ev…

It can be a moment of huge excitement when a concert or huge event is announced to be coming to a nearby venue. There are l...

Coast of Gold Bursts into Australian Market with Award-Winning Sh…

An Australian brand centred on authentic West African flavours is making massive waves in the premium foods and condiment...

Times Magazine

The Science Behind Neodymium Magnets: How They Work and Why They’re So Powerful

In the world of magnets, neodymium magnets are the rock stars. Despite their small size, they are the big hitters. The power and performance of neodymium magnets make them essential in everything from earbuds to electric vehicles. But what exactly ...

The Ethical Considerations of AI Chatbots: Balancing Innovation with Responsibility

The rise of AI chatbots has dramatically transformed how businesses interact with customers. These intelligent tools can handle inquiries, provide support, and even personalize user experiences. However, with this innovation comes a host of ethical c...

Segway ZT3 Pro All-Terrain Electric Scooter

Segway-Ninebot, the global leader in the micromobility transportation solutions and robotic service industries is announcing its brand-new ZT series of electric scooters with the ZT3 Pro in Australia. The Segway ZT3 Pro combines cutting-edge smar...