Grim warning for Aussie homeowners ahead of next week’s RBA board meeting

A major economic health check recommends the Reserve Bank makes a major move on interest rates when the board meets next week.

The Reserve Bank has been urged to lift interest rates and governments warned to pull back on infrastructure projects to reduce inflation.

In its annual economic health check, the International Monetary Fund concluded Australia’s economy was “resilient” but “sticky” inflation was a cause for concern.

“Although inflation is gradually declining, it remains significantly above the RBA’s target and output remains above potential,” it said.

“Staff therefore recommend further monetary policy tightening to ensure that inflation comes back to the target range by 2025 and minimise the risk of de-anchoring inflation expectations.”

The central bank board will meet next Tuesday to consider increasing the cash rate. Economists have tipped the board will lift the rate to 4.35 per cent in the wake of firmer than expected inflation data.

The RBA will meet to discuss interest rates next week.

Annual headline inflation fell to 5.4 per cent in September, down from 6 per cent in June, but quarterly inflation accelerated 1.2 per cent in the three-month period.

The IMF gave a tick of approval to the government’s decision to bank the extra tax revenue from high commodity prices that helped deliver the first budget surplus in 15 years.

But it said both state and federal governments should wind back infrastructure projects in order to stop mortgage holders being burdened in the inflation fight.

“The Commonwealth government and state and territory governments should implement public investment projects at a more measured and co-ordinated pace, given supply constraints, to alleviate inflationary pressures and support the RBA’s disinflation efforts,” the fund said.

“Otherwise, interest rates would have to be even higher, putting the burden of adjustment disproportionately on mortgage holders.”

The federal government is reviewing its major infrastructure projects.

Treasurer Jim Chalmers said the report was a a “glowing endorsement” of the government’s handling of the economy.

“The IMF makes it abundantly clear that our cost of living plan and our responsible economic management is helping rather than hampering the fight against inflation,” he told reporters on Wednesday.

“The government is doing exactly what we need to be doing to take the edge off these inflationary pressures to invest in people in the energy transition and housing at the same time as we get the budget in much better nick.”

But he declined, when asked, to weigh in on whether the bank should lift rates next week: “I don’t preempt decisions taken independently by the Reserve Bank.”