IMF Urges RBA to Be Ready to Raise Rates, Warns Inflation Could Overshoot Target, Cuts Australia Growth Forecast to 1.9%
MacroDigital Finance
The International Monetary Fund, or IMF, has advised the Reserve Bank of Australia, or RBA, to be prepared to raise interest rates if necessary, as inflation still carries the risk of moving higher. In its statement summarising the annual assessment of the Australian economy for 2026, known as the Article IV consultation and published on 17 September, the IMF said bringing inflation back to target should be the key near-term task, and the RBA should give priority to containing inflation risks. The RBA's inflation target framework is 2-3%. At the same time, the IMF cut its forecast for Australia's economic growth this year to 1.9% from 2%, and lowered next year's forecast to 1.6% from 1.7%. It said the RBA's rate hikes are starting to weigh on economic activity, including the housing market, and are making financial conditions tighter. The Australian dollar remains one of the strongest-performing currencies in the G10 this year, reflecting tighter financial conditions. The IMF's recommendation comes as the market expects the RBA may raise rates again this month, after three increases between February and May, before holding the rate at 4.35% at its two most recent meetings. The IMF said the Australian economy entered the year with strong fundamentals, even though earlier rate increases are beginning to affect economic activity and the housing sector.
