Top priority: get inflation back into the Reserve Bank of Australia's 2 to 3 percent target band. As the IMF put it, "Monetary policy should remain focused on containing inflation risks." With underlying price pressures still persistent and uncertainty about how tight conditions really are, the fund's message is that the RBA should be ready to raise rates if the data require it. It also flagged a specific risk: a fresh surge in global energy prices could feed through the economy, lift inflation expectations, and justify additional tightening. On the fiscal side, holding the line on government spending would support disinflation and help rebuild buffers.
The IMF nudged its outlook lower, trimming this year's growth projection to 1.9% from April's 2% call, and next year to 1.6% from 1.7%. Previous RBA increases have been damping overall activity - housing included - and financial conditions have tightened. The Australian dollar ranks among the strongest G‑10 currencies this year.
The RBA raised rates three times from February through May, then held the cash rate at 4.35% at the past two meetings. The bank's own path points to reaching the midpoint of its inflation target in early 2028. The IMF also noted Australia started the year from a strong position.
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All of this coincides with expectations that the RBA will move to raise rates again as early as this month.
Energy keeps complicating the picture. Earlier this month, the US and Iran traded attacks involving oil tankers in the Persian Gulf, pushing energy prices higher. Over the weekend, frictions reignited in the Strait of Hormuz, and Saudi Arabia faced renewed pressure from Houthi militants backed by Tehran in Yemen.
The IMF also sees a domestic squeeze building: a rise in data center investment is already adding strain in construction and could push energy costs higher. Medas made his comments just hours after the Federal Reserve lifted its policy rate and signaled another increase later this year, while market participants expected the Bank of Japan to hike its benchmark rate on Friday.
Medas said the RBA "appropriately raised rates because demand was quite strong," and the live question now is "was the tightening enough?" He added the central bank may need to act again this year and "shouldn't wait too long." The next checkpoint is unemployment data next week, the last major release before the Sept. 28 to 29 policy meeting. The IMF welcomed the government's push to lift productivity but said "a more ambitious reform strategy is needed," urging better regulation, addressing infrastructure chokepoints, and reshaping the tax system to be more growth‑friendly. It said success will hinge on wide‑ranging, durable coordination spanning agencies and every tier of government, with a more systematic effort to evaluate and reduce regulatory costs and distortions. Translation for your wallet: policy is still in play, energy shocks are a swing factor, and growth has cooled, so jobs data and late‑September decisions will shape where borrowing costs and inflation head next.
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