While the
RBA may have stayed its hand the past two months, the IMF has warned it may need to cut rates further.
The IMF's latest World Economic Outlook has warned that Australia may beed to cut rates again amid rising unemployment and falling inflation expectations,
Fairfax has reported. The group has forecast unemployment to rise to 6.4% this year, and remain at 6.2% in 2016.
"In economies in which output gaps are currently negative [Australia, Japan, Korean, Thailand], policymakers may need to act to prevent a persistent decline in inflation expectations," the IMF said.
Falling inflation expectations could mean drops in consumer spending and wage growth,
HSBC Australia chief economist Paul Bloxham
told Fairfax.
"It's a circular story. Less wages would mean less demand, and that in turn would mean less inflation and you could see a spiralling effect of lower and lower wages and inflation until the economy is ground down," Bloxham said.
