RBA told to ‘keep hiking’ interest rates
Despite Australia’s strong economic recovery from the pandemic, the International Monetary Fund (IMF) has warned we’re not out of the woods yet.
IMF Australia mission chief Harald Finger and IMF deputy mission chief Evan Papageorgiou said Australia’s economic growth was expected to slow to about 1.7 per cent next year amid a “difficult” global economic outlook.
“There are significant downside risks to this assessment, including a more pronounced global growth slowdown, more persistent inflationary pressures, and an acceleration of the ongoing housing price decline,” they told the press at the Sydney Masonic Centre today.
The IMF report focused on Australia’s interest rate and property outlook and revealed whether a recession was on the horizon. Here are some of the main takeaways.
RBA needs to keep hiking interest rates
The IMF said the Reserve Bank (RBA) needed to continue increasing interest rates to fight inflation as the cost of living continued to rise.
It added that the Government should also work to support the central bank to address cost-of-living pressures but that it should be “temporary and well-targeted” to help those most in need while not adding to the inflation problem.
“Monetary policy needs to be focused, first and foremost, on keeping inflation expectations well anchored, which clearly points to more tightening in the short term,” it said.
Housing prices will fall even further
On top of that, the IMF warned Australia’s property market - already seeing major price falls - was expected to fall further.
“Amid rising interest rates, high inflation and increasing housing supply, the earlier surge in housing prices has reversed, and housing prices are expected to continue declining significantly,” it said.
“Yet, affordability concerns are increasing given strongly rising rents and lower borrowing capacity amid much higher mortgage rates. A strong focus on boosting housing supply remains essential, supported by well-targeted support for lower-income households.”
Australia might avoid recession
The IMF said Australia was expected to steer clear of a recession, but warned that could change quickly depending on what happened globally.
“On the external front, a more pronounced growth slowdown in main trading partners, including China, would affect Australia’s exports,” it said.
“Domestically, more persistent and higher inflation and wage pressures would require steeper and more prolonged monetary tightening, affecting growth. The decline in housing prices has the potential to accelerate, which can reduce household consumption, with some impact on banks’ balance sheets.”
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