The Reserve Bank of Australia remains "alert and vigilant" to emerging price pressures, including renewed pain at the pump.
In an almost universally expected move on Tuesday, the cash rate was left at 4.35 per cent for the fourth meeting in a row.
But the post-meeting statement and press conference veered in a more hawkish direction, with RBA governor Michele Bullock confirming the board had considered the case to hike.
At its meeting today, the Board decided to leave the cash rate target unchanged at 4.35 per cent and the interest rate paid on Exchange Settlement balances unchanged at 4.25 per cent. — Reserve Bank of Australia (@RBAInfo) https://t.co/0kIi6oXLzgMay 7, 2024
The more assertive tone reflected a stronger set of March quarter inflation data, with Ms Bullock warning the path back to within target inflation would "continue to be bumpy".
"We believe we have rates at the right level to return inflation to the target range next year, but as we have said in the past, getting inflation back to target will take time," she said.
National Australia Bank head of market economics Tapas Strickland was surprised to see no explicit reference to the possibility of more hikes, with the RBA instead sticking with its mantra of "not ruling anything in or out".
But the economist said the RBA was clearly "alert and vigilant" when it came to consumer prices, with the statement flagging the persistence of services inflation as a key source of uncertainty.
"That of course keeps focus on June quarter inflation," Mr Strickland wrote in a note.
As expected, the RBA's refreshed economic forecasts - unveiled in its May statement of monetary policy at the same time as the decision - revealed upgrades to inflation in the near term.
Headline inflation had been revised up to 3.8 per cent in June this year, above the 3.6 per cent in the March quarter and well above the 3.3 per cent forecasted back in February.
Rising petrol prices and the unwinding of government energy bill relief was expected to nudge headline inflation higher in the near term, the RBA said in the statement.
Rising fuel prices are among factors putting more pressure on inflation. (Flavio Brancaleone/AAP PHOTOS)
Yet the bump from the energy subsidies ending may not materialise if the federal government chooses to extend them in next week's budget.
Speaking after the decision, Treasurer Jim Chalmers said Australians were doing it tough and next week's budget would focus on "easing cost-of-living pressures, not adding to them".
"This period of rates on hold has provided stability in difficult times for Australian mortgage holders and small businesses," he said.
The RBA's longer term inflation forecasts were largely unchanged, with consumer prices expected to be back within target by late 2025.
Today's RBA decision means when the board next meets it will be nearly 8 months since interest rates last went up, providing stability in difficult times. The Budget's major focus will be easing inflation in the near term and easing cost-of-living pressures — Jim Chalmers MP (@JEChalmers) #auspol #auseconMay 7, 2024
HSBC chief economist for Australia, Paul Bloxham, said this was largely a product of the higher-for-longer assumed cash rate, which was lifted to 4.4 per cent by the end of 2024, up from 3.9 per cent.
Market pricing was used to inform the RBA's assumptions, which are used to generate its economic forecasts but do not indicate where the central bank expects interest rates will go.
The RBA's economic growth forecasts were also revised down slightly over the near term and the unemployment rate had been inched down over the forecasts horizon.
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