# IMF tells Australia to cut spending as rates may rise

> The International Monetary Fund downgraded Australia's growth forecast and warned interest rates could climb higher unless governments rein in spending.
- Title: IMF tells Australia to cut spending as rates may rise
- Summary: The International Monetary Fund downgraded Australia's growth forecast and warned interest rates could climb higher unless governments rein in spending…
- Keywords: imf, australia, interest rates, economic growth, inflation, government spending, jim chalmers, reserve bank, budget deficit, productivity, news, world
- Source: the Guardian — https://theguardian.com/australia-news/2026/sep/17/imf-downgrades-australian-economic-forecast-amid-fears-of-interest-rate-hike
- Published: 2026-09-17T00:20:26+00:00
- Read time: 1 min
- Topics: imf, australia, interest rates, economic growth, inflation, government spending, jim chalmers, reserve bank, budget deficit, productivity, news, world
## IMF downgrades Australia's growth
The International Monetary Fund cut its 2027 economic growth forecast to 1.6%, down from 1.7%, citing risks of further interest rate hikes needed to control inflation.

> Inflation remains a central challenge, while weak productivity growth is weighing on the economy's potential.
## Cut spending, IMF tells government
The IMF urged federal and state governments to reduce spending to control rising debt and help the Reserve Bank tackle inflation through monetary policy alone.

> More disciplined budgets would rein in rising debt burdens and help solve Australia's long-running inflation problem.
## Oil prices spike, rate hike looms
Brent crude surged above 108 dollars a barrel as Middle East tensions escalated, up 35% since August. Financial markets now price an 80% chance of a Reserve Bank rate hike on September 29.
## Treasurer faces political pressure
Treasurer Jim Chalmers is under pressure to show the economy is improving and living standards are rising, but the IMF's downgrade and rate hike warnings complicate that narrative.
## States drowning in debt interest
New South Wales and Queensland now spend more than twice as much on debt interest compared to before the pandemic, as combined federal and state deficits have widened significantly.
## Tax changes get IMF backing
The IMF supported Labor's investor tax changes, saying they create more balanced incentives and could boost investment outside housing while easing price pressures.

> That's where we think it's a positive change to the tax system, and hopefully helps on this affordability issue in housing.
## Productivity is the real problem
The IMF identified weak productivity growth as Australia's key structural challenge, warning that reversing the slowdown is essential for improving living standards and managing long-term debt.

> Reversing the slowdown in recent years will be crucial to improving living standards.
## Key takeaway

Australia faces a squeeze between rising inflation and weak growth, forcing tough choices on government budgets and interest rates.