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Australian mortgage holders hoping for a belated Christmas present next year might need to prepare for more Reserve Bank rate hikes if inflation doesn't take a dip.
The International Monetary Fund (IMF) flagged the bleak possibility of another RBA interest rate hike in 2025 in its annual economic health check shared just days before Christmas.
While core inflation has been slowly working towards the RBA's target range of 2-3 per cent, 2025 could still bring a fresh hike should disinflation stall, the Washington-based IMF warned.
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"If disinflation stalls, tighter monetary and fiscal policies may be necessary," it wrote in an update on Australia's economy.
"Inflation is anticipated to sustainably return to the RBA's target range only by the end of 2025, while a potential stall in disinflation poses a significant risk."
The IMF also noted it is concerned the government's fiscal policy is currently working against the RBA's restrictive monetary policy, which contradicts the end goal of disinflation.
"Expenditure rationalisation at all levels of government could help reduce aggregate demand and support a quicker return of inflation to its target," the report added.
It also warned Australia's disinflation pace is slower than other similar advanced economies.
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"While the RBA is one of the last central banks to cut rates among peers (along with the Norges Bank [in Norway]), this also reflects a later peak in inflation and a subsequent later tightening of rates than in some peers," the IMF said.
Next year's economic policies should also focus on tax overhauls and to zero in on Australia's housing crisis, the IMF stated.
It echoed its call for the government to end the 50 per cent capital gains tax discount in a bid to reform the tax system.
"A comprehensive policy package is essential to tackle Australia's housing affordability crisis, focusing on increasing the construction workforce, relaxing zoning regulations, advancing initiatives to boost new housing supply, and reevaluating property taxes and stamp duty."
