Economic Buzz: Reserve Bank Of Australia Should Continue To Raise Interest Rates Says IMF

16 Nov 2022 , 12:02 PM

The International Monetary Fund or the IMF noted in a latest update that while the economic recovery in Australia since the depth of the pandemic has been among the strongest in the advanced economies, growth is expected to slow to about 1.7 percent in 2023 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. Continued monetary and fiscal policy tightening is needed to rebalance domestic demand and keep inflation expectations well anchored. The RBA should continue to raise interest rates, and fiscal policy should support it in moderating domestic demand growth through judicious budget execution and saving of any revenue overperformance. Fiscal support to address cost-of-living pressures should be temporary and well-targeted to help those in need, so that broader demand stimulus is avoided. Risks to financial stability have increased but appear contained despite falling housing prices and elevated household debt, given significant household and bank capital buffers. Australia’s economic recovery has been strong. Australia has recovered faster than most other advanced economies and has returned to its pre-pandemic output trend. Growth in the first half of 2022 was 3.4 percent y/y, despite headwinds from the Omicron variant, floods in eastern Australia, and external factors such as China’s ongoing slowdown and global growth uncertainty resulting from Russia’s war in Ukraine. Labor markets also reflect the strength of the recovery, with employment and labor force participation near record highs while increasing capacity constraints are reflected in the unemployment rate, which is near a 50-year low.Powered by Commodity Insights