IMF Warns RBA to Stay Ready for More Rate Hikes
The IMF is urging the RBA to stay prepared for further rate increases as inflation persists, while backing housing tax and supply reforms to ease affordability.
The International Monetary Fund rarely softens its language when it believes a central bank risks moving too soon. In its preliminary assessment of the Australian economy, released Thursday 17 September, the IMF drew a clear line: the Reserve Bank of Australia should not ease monetary conditions until inflation is durably heading back toward its target. For borrowers hoping the rate cycle was nearing its end, that is a sobering message.
IMF Backs Further Hikes If Inflation Stays Elevated
The Adviser reports the IMF's assessment found that inflation remained "the immediate policy challenge," with no room to ease policy until there was convincing evidence underlying inflation was on a sustained downward path.
The report explicitly flagged the risk of further energy price shocks: "There is a risk that further large increases in global energy prices lead to stronger second-round effects and lift inflation expectations, warranting further tightening."
On the prospect of any future rate cuts, the IMF was equally direct: "Any future cuts must be contingent on sustained progress in reducing underlying inflation."
That language reinforces what financial markets and the major banks are already pricing in. Markets are assigning a 76% probability to the RBA raising the cash rate to 4.6% at its 29 September meeting — which would represent a 15-year high. All four major banks now expect at least one further cash rate rise before the end of 2026. CBA, Westpac and ANZ are forecasting a November move, while NAB expects the RBA to act at the September meeting.
The IMF assessment arrived in the same week that the US Federal Reserve unanimously raised its benchmark rate by 25 basis points to a 3.75–4 per cent range, citing "elevated" inflation. The Bank of Japan separately lifted its policy rate to 1.25 per cent — the highest level since 1995. The global tightening context is relevant for Australian borrowers because wholesale funding costs, which shape what lenders charge on home loans, are influenced by international as well as domestic rate settings.
If you want to understand what a rate hike would mean for your household, it is worth using a repayment calculator to model different scenarios, or reviewing how a rate change could affect your borrowing power before the RBA meets.
What the IMF Said About Australian Housing
Beyond its rate guidance, the IMF used the assessment to weigh in on Australia's housing affordability challenge and the federal government's recent policy moves.
The IMF offered qualified backing for changes to capital gains tax and negative gearing, according to The Adviser. The assessment said those reforms "can reduce housing-related distortions, but continued efforts to minimise compliance costs and impact on investment are needed during implementation."
On the broader state of the housing market, the IMF's read was candid: the correction underway had "not materially eased affordability pressures, as supply remains constrained." Despite some softening in property prices across regions and price segments, the underlying problem — not enough homes — has not been resolved.
The IMF backed the planning and zoning reforms being advanced in several Australian states, including measures supporting higher-density development and faster approvals. But it said ambition needed to increase: "A more ambitious and co-ordinated supply agenda is needed." The report pointed specifically to the need for better infrastructure provision, improved productivity in the construction sector, and tighter coordination between federal, state and local governments to convert planning approvals into completed homes.
Looking further ahead, the IMF renewed its call for broader tax reform, with options including replacing stamp duty with a recurrent annual property levy, broadening the consumption tax base, and reducing reliance on personal income taxes. These are longer-term structural recommendations rather than immediate policy changes, but they reflect the IMF's longstanding view that Australia's tax system distorts investment toward property in ways that compound the affordability problem.
What This Means for Australian Borrowers
The picture the IMF paints is one in which monetary conditions stay tight for longer than many had hoped, and structural affordability challenges in housing persist regardless of short-term price movements.
For borrowers already in the market, the near-term priority is stress-testing your budget against the realistic possibility of another one or two cash rate hikes before the cycle turns. If your current variable rate has not been reviewed recently, comparing what is available across refinance products could still save you money even ahead of any RBA move — many borrowers are sitting on rates that are no longer competitive.
For those looking to buy for the first time, the IMF's assessment underlines that supply-side reforms will take years to translate into meaningfully lower prices. If you are financially ready to buy, understanding your first home buyer options now — including government assistance schemes and which lenders are most responsive to your situation — is more actionable than waiting for the policy cycle to work itself out.
The RBA board meets on 29 September. Whether the next hike arrives then or in November, the IMF's message is that the rate environment is unlikely to ease quickly. Getting your finances in the best possible shape before that meeting — reviewing your rate, stress-testing your repayments, and talking through your options with a broker — is time well spent.