© Reuters. A view of the Central Business District and surrounding city is seen from the Sydney Tower Eye observation deck as the state of New South Wales continues to report low numbers for new daily cases of the coronavirus disease (COVID-19), in Sydney, Australia
SYDNEY (Reuters) – The staff of the International Monetary Fund on Wednesday recommended Australia’s central bank further tighten monetary policy in order to bring inflation back to target and keep inflation expectations anchored, after an annual consultation.
In a report that is yet to be presented to the IMF Executive Board, the staff said the slowdown in inflation in Australia is slow and core inflation remains sticky.
“Staff therefore recommend further monetary policy tightening to ensure that inflation comes back to the target range by 2025 and minimize the risk of de-anchoring inflation expectations,” they said.
The Reserve Bank of Australia has raised rates by 400 basis points since May last year to an 11-year high of 4.1% to tame a post-pandemic surge in prices, but have paused for four months now as policymakers wanted to preserve the strong job gains in the labour market.
However, with inflation proving stubbornly high, consumers showing signs of resilience and housing prices on track to hit a record high, a majority of economists and markets are now betting the RBA will respond with another rate hike as soon as next week.
The RBA currently forecasts inflation will return to the target band of 2-3% in late 2025, an already protracted path compared with other major economies.
