International Monetary Fund says Australia needs higher interest rates

The International Monetary Fund has urged the Reserve Bank to lift official interest rates further while warning they may have to go even higher if the nation’s governments don’t abandon or delay some of their multibillion- dollar infrastructure projects.

The fund said while fiscal policy was working in line with monetary policy, higher interest rates would be necessary to bring down inflation, which has eased to 5.4 per cent but remains well above the RBA’s 2-3 per cent target band.“Although inflation is gradually declining, it remains significantly above the RBA’s target and output remains above potential,” it said.

Economists at the ANZ bank this week estimated the nation’s governments are on track to spend $30 billon on major infrastructure projects this financial year before hitting a record $32 billion in 2025-26.According to the IMF, all governments should consider winding back their infrastructure spending to take pressure off the Reserve Bank to lift interest rates.

The fund is forecasting Australian economic growth to ease from 1.8 per cent this year to just 1.2 per cent in 2024. Economic growth at that rate, given Australia’s strong population growth, would suggest a per capita recession. Treasurer Jim Chalmers delivers the federal budget in May. The IMF says budget policy is working in line with monetary policy.“ At the state and territory level, implementing recurring property taxes in lieu of stamp duties on housing transactions would promote housing affordability, more efficient use of the housing stock, labor mobility, and more stable tax bases over the medium term,” it said.The fund noted the risks to the economy were broadly balanced.

Source: Loan Digest (loandigest.net)

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