The International Monetary Fund (IMF) supports the tough monetary policy of the Reserve Bank of australia, while warning that if the anti-inflation struggle stalls, interest rates may need to be raised again.

IMF staff visiting australia on Thursday released a report stating that the Australian economy is resilient but faces challenges, including significant risks from abroad.

The report states: "Growth has slowed down. Although inflation is falling from its peak, due to continued supply-demand imbalances, especially in areas such as rent, new housing, and insurance, inflation remains high."

A "mild" recovery is expected next year, rising from 1.2% in 2024 to 2.1% in 2025, marked by improvements in real income and the resilience of the labor market. However, economic growth is expected to remain below potential growth rates until 2026, converging to 2.3% in 2026.

IMF states: "Recent policy should continue to focus on promoting economic growth while reducing inflation."

The Reserve Bank of australia's "continued restrictive monetary policy stance designed to combat ongoing inflation is appropriate."

Potential inflation is expected to continue to return to the central bank's target range of 2-3% by the end of next year, and "potential price pressures will only gradually ease."

The report states: "If anti-inflation stagnates, further policy tightening may be needed, while maintaining targeted support for vulnerable families as living costs continue to rise."

The report points out, "Potential price pressures remain high", referring to rents, new homes, and insurance.

"While the severe supply-demand imbalance in the real estate market has begun to ease, nationwide housing prices have exceeded the peak levels during the pandemic, and this momentum continues, with rents also significantly rising."

"Addressing the challenge of housing affordability requires a comprehensive approach to address the persistent supply shortage problem."

The IMF emphasizes the need to improve productivity, strengthen competition, and innovation. It should "responsibly" utilize ai technology and strategically guide climate transformation.

"Efforts should focus on revitalizing Australia's productivity growth, including through competition policies, with a focus on reforms in capital and labor markets."

IMF welcomes the announcement of the second consecutive surplus for 2023-2024.

It also supports the proposal to establish a new currency policy committee for the central bank. Due to lack of support from parliament, this proposal has been blocked so far. The IMF states that this policy aligns with international best practices, enhancing central bank operational autonomy and strengthening the synergy between monetary and fiscal policies.

IMF advocates for tax reform to promote efficiency and equity. They should reduce reliance on "direct taxes and high capital costs that hinder growth".

"Tax exemptions, including capital gains tax discounts and retirement savings incentives, can be gradually phased out to establish a fairer and more effective tax system."

IMF states that upcoming environmental and demographic changes "will bring structural upward pressure on government spending." "Therefore, expenditure reforms should aim to improve expenditure efficiency and sustainability."

Finance Minister Jim Chalmers stated that IMF supports the government's economic management. He said: "The government's primary focus is to address inflation challenges without neglecting growth risks, and IMF supports this global strategy."