UPDATE 2-Australia recovery on track, led by mining – IMF

* IMF: raise rates if inflation pressures emerge

* Mining boom driven by demand by China and India

* Australian dollar may be overvalued by 5 to 15 pct
(Recasts throughout with details from IMF staff report)

WASHINGTON, Oct 28 (BestGrowthStock) – Australia may need to
tighten monetary policy further to contain inflation pressures
being generated by a mining boom, the IMF said on Thursday.

The IMF’s annual review of Australia’s economy said the
recovery was on track, led by strong demand for its commodities
from China and India.

It said gross domestic product growth was projected to
reach 3 percent in 2010 and 3.5 percent next year. Staff
assessments estimated that the Australian dollar (AUD=D4: ) may
be overvalued by somewhere between 5 to 15 percent.

It said inflation was projected to remain close to the top
of the 2 to 3 percent target band and noted authorities agreed
in discussions that if further inflation pressures emerged,
they will need to raise rates further.

The IMF said private investment in mining and commodity
exports had overtaken public demand as the main driver of
growth in Australia. The mining boom was likely to be long
lasting, it said, given demand by for commodities from
fast-growing Asian economies.

Prices for key exports such as iron ore and coal are likely
to remain high in the near-term, the Fund said.

The IMF said the authorities agreed in discussions that the
commodities boom will test the economy’s capacity and fiscal
policy had so far played a key role in managing the boom.

The IMF said it approved of the pace at which the central
bank was unwinding monetary stimulus.

“If the recovery and economic growth remain on track and
downside risks dissipate, monetary policy might need to tighten
further to contain inflation pressures,” the IMF said.

“Should the global recovery stall, the (central bank) has
scope to cut the policy rate,” it added.

The Reserve Bank of Australia has has raised the policy
rate to 4.5 percent in six steps, the most recent in May.

The fund said it also supported government plans to return
to a budget surplus of 0.2 percent of GDP by 2012/13. It noted
that a larger surplus than in the past may help avoid potential
overheating and offer protection from sharp falls in commodity
prices.

The IMF said a fall in prices for houses, which could be
somewhat overvalued, according to staff assessments, could
affect private consumption and slow the recovery in Australia.
(Reporting by Lesley Wroughton; Editing by Neil Stempleman)

UPDATE 2-Australia recovery on track, led by mining – IMF