Returning inflation to target in the near term should be top priority, the International Monetary Fund said in its latest check-up of the nation's economy on Thursday.
The "soft landing" that the IMF identified in its last mission statement to Australia in February had hit with a thud, thanks in part to weak productivity growth and the Middle East conflict.
Rising oil prices, hotter-than-anticipated July inflation figures and hawkish commentary from the bank's top brass in recent weeks has raised expectations among economists and money markets for at least one more rate rise this cycle.
"Given persistent underlying inflation pressures and large uncertainty around whether financial conditions are sufficiently restrictive, the RBA should stand ready to hike rates as needed," the IMF said in its mission concluding statement.
"In addition, there is a risk that further large increases in global energy prices lead to stronger second-round effects and lift inflation expectations, warranting further tightening."
But the RBA has a delicate balancing act to manage. If growth slows sharply, rate cuts should be considered, but only if inflation looks like getting under control, the IMF said.
Part of the difficulty in controlling inflation has been Australia's weak productivity growth, which has gone backwards over the last four years.
Declining productivity has limited the speed the economy can grow at without pushing up inflation and has weighed on Australians' living standards.
The IMF welcomed the federal government's attempts to improve productivity, but called for a "more ambitious reform strategy" to boost competition, reduce over-regulation and rebalance the tax system.
It recommended replacing stamp duties with a recurrent land tax and shifting the tax burden away from income and towards consumption.
"Further progress on smarter regulation, alongside addressing infrastructure bottlenecks and making the tax system more growth-friendly, would help boost productivity," the report said.
Changes to property investor tax breaks in the federal budget also got the IMF's tick of approval for helping to fix the housing market.
"Housing affordability pressures remain despite the recent fall in housing prices," the IMF said.
"Recent budget measures to support enabling infrastructure, build-to-rent housing, and social and affordable housing are welcome, and recent tax changes should reduce some demand-side distortions."
Treasurer Jim Chalmers said the IMF's report backed the government's budget changes and ongoing focus on productivity.
"It's a timely endorsement of our economic strategy at a time of accelerating change and uncertainty in the global economy," he said.
Further efforts to boost supply, such as providing more enabling infrastructure and improving productivity in the construction sector, were also encouraged.
The IMF was positive about the impact of the AI and data centre boom on Australia's economic growth and productivity.
But it could also put pressure on the construction sector and lead to higher electricity costs and inflation if new renewable energy projects were not built fast enough, it said.
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