IMF Expects Australian Rates to Stay Low for Longer -- Update

By James Glynn Features Dow Jones Newswires

Australian interest rates could remain at record lows for another year, the International Monetary Fund said Monday.

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At the conclusion of a review of the Australian economy that included meetings with the Reserve Bank of Australia and the Treasury, the IMF said Australia needed low interest rates and loose budget settings to lift economic growth, inflation and employment over time.

"Securing the return to full employment and inflation objectives durably will require continued macroeconomic policy support," the IMF said.

But with plenty of spare capacity remaining in Australia's job market, it is possible interest rates will remain at their current record lows for an extended period to come.

That's partly because great uncertainty exists around whether inflation and wages will rise meaningfully when full employment is achieved in Australia, the IMF said.

Asked if interest rates could be left on hold throughout 2018, Thomas Helbling, the leader of the IMF consultations, told reporters "it's possible." interest rates could remain at their current low.

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Policy rates in Australia have already been on hold since August 2016. With recent data showing little or no inflation or wage pressure, financial markets are now betting a rate increase could be delayed until the end of next year.

The benign outlook suggests Australia will lag behind the global upswing in growth and interest rates, circumstances that could erode support for the Australian dollar.

Mr. Helbling said that while Australia's economic outlook was strengthening, a return to full employment could be quite slow compared with other countries.

"What you really want at this point is to be sure that you have strong domestic demand momentum, and more momentum in inflation and prices than their currently is," he added. "And it may well take a year."

Write to James Glynn at james.glynn@wsj.com

(END) Dow Jones Newswires

November 20, 2017 02:57 ET (07:57 GMT)