Australian mortgage holders may face another interest rate hike from the Reserve Bank of Australia (RBA) in 2025 if inflation does not decline, according to a recent assessment by the International Monetary Fund (IMF). While core inflation is gradually approaching the RBA’s target range of 2-3%, the IMF warns that a halt in disinflation could prompt tighter monetary and fiscal measures. The report indicates that inflation might only sustainably return to target by late 2025, highlighting significant risks if disinflation stalls.
The IMF raised concerns about the Australian government’s fiscal policies potentially undermining the RBA’s restrictive monetary stance, suggesting a careful reassessment of government expenditure could help mitigate demand and support a quicker return to inflation targets. It noted that Australia’s pace of disinflation is lagging compared to similar developed economies.
In terms of economic strategy, the IMF pointed to the need for a comprehensive approach to address Australia’s housing affordability crisis. This includes proposed reforms such as abolishing the 50% capital gains tax discount and altering zoning regulations to enhance housing supply. The overarching theme is that effective taxation reform and policy initiatives are vital for achieving more sustainable economic health and addressing pressing housing issues in Australia.