IMF says Australia should continue to tighten monetary policy

Australia should continue to tighten monetary and fiscal policy to help soften domestic demand and curb inflation expectations, the International Monetary Fund said. 

In the final report from the 2022 mission to Australia, IMF staff said Wednesday that the country's monetary policy should primarily focus on maintaining inflation expectations, clearly hinting at tightening in the short term. 

Australia's large household debt burden and a significant percentage of variable-rate mortgages or soon-to-be-transformed mortgages point to a relatively transmissionist effect. At the same time, the savings accumulated during the pandemic suggest significant reserves that could weaken and slow the transmission mechanism, the paper said. 

The Reserve Bank of Australia has raised interest rates by 2.75 percentage points since tightening began in May and has said it will continue to raise them as it forecasts that consumer-goods price growth will peak at 8 percent this year. 

Economists and market participants predict that the RBA will raise the cost of borrowing another quarter point next month, setting the interest rate at 3.1 percent.