Millions of Australians have been granted another reprieve from further rises in their mortgage bills after the Reserve Bank left interest rates on hold in August.

The cash rate target will stay at a decade-high 4.1 per cent for a second straight month after central bankers met on Tuesday.

RBA boss Philip Lowe said earlier rate hikes were working to cool inflation, as he warned the latest reprieve might be short-lived.

Tuesday’s keenly anticipated decision came after June quarter data published last week revealed inflation is easing faster than the RBA had forecast as consumer spending grinds to a halt amid escalating cost of living pressures.

“Higher interest rates are working to establish a more sustainable balance between supply and demand in the economy and will continue to do so,” Dr Lowe said on Tuesday.

“In light of this and the uncertainty surrounding the economic outlook, the board again decided to hold interest rates steady this month.

“This will provide further time to assess the impact of the increase in interest rates to date and the economic outlook.”

The pause means monthly repayments on a typical $500,000, 25-year home loan will not rise another $78 dollars, as they would have done if the RBA decided to further increase rates in August.

But the effects of 12 previous hikes from May 2022, which have added more than $1100 to mortgage bills, are still being felt across the nation, pushing more than a million homeowners into financial stress.

Treasurer Jim Chalmers said the latest pause was a welcome move.

“This is a welcome reprieve for Australians who are already doing it tough,” he told Parliament on Tuesday afternoon.

“We know inflation in our economy is coming off, but it is still too high.”

A majority of economists had expected the August pause, though a notable minority had tipped a hike. Experts do agree that each successive RBA rate call in 2023 is finely balanced.

Central bankers want the annual inflation rate to fall from 6 per cent back to their 2-3 per cent target by mid-2025. But whether higher interest rates are needed to achieve that is still unclear.

Indeed, APAC economist Callam Pickering said there wasn’t a strong case to hike rates in August with inflation easing around the world.

“Nevertheless, it would be a mistake to assume that the hiking cycle is over, particularly given the RBA’s ongoing concerns around service sector inflation,” he said.

“Australia is currently importing lower inflation from abroad, with global inflation easing considerably. The RBA, however, isn’t convinced that the battle is over. They still anticipate that further rate hikes may well be needed to contain the current inflation outbreak.”

Dr Lowe reiterated on Tuesday that further rate hikes “may” be needed, echoing the guidance provided by central bankers at earlier meetings.

“That will depend upon the data and the evolving assessment of risks,” he said.

“In making its decisions, the board will continue to pay close attention to developments in the global economy, trends in household spending, and the outlook for inflation and the labour market.”

One key uncertainty is whether prices for services – as opposed to goods – increase faster than the Reserve is comfortable with in late 2023.

There were few signs of a massive escalation in services inflation in the June quarter, but economists said it remained a risk if wages growth continued increasing against a backdrop of lacklustre productivity gains.

CoreLogic research director Tim Lawless described an uncertain outlook for rates, with economists in disagreement about what will happen next.

“Some economists have already called a peak in the rate-hiking cycle, others believe there will be one more hike in the coming months, while others are pricing in two more rate hikes,” he said.

“The range of cash rate forecasts reflects the sheer uncertainty in the economy.”