A hawkish RBA boss Michele Bullock has warned interest rate cuts are likely at least six months away.

In a widely expected move, the central bank held the cash rate at 4.35 per cent, where it has been since November 2023.

In her post-meeting media conference, Bullock revealed the board had considered both a pause and another rate rise on Tuesday.

“We’re setting policy for where the economy is heading, not based on where we’ve been and that’s the challenge,” she said.

“What we can say is that a near-term reduction in the cash rate doesn’t align with the board’s current thinking. We’ve seen
from overseas experience how bumpy inflation can be on the way down and across the economy.

“I understand that this is not what people want to hear. I know there are many households and small businesses that are struggling with interest rates where they are. Many people are doing it tough and we’re very conscious of that.”

Bullock’s statement came after two major banks – Commonwealth and Westpac – had predicted a cut to the official cash rate as soon as November.

The ANZ has tipped February and National Australia Bank a May commencement for easing.

Bullock said the likelihood of cuts “by the end of the year, in the next six months” did not align with the board’s thinking.

“Given what we know at the moment and the forecasts, near-term interest rate cuts are not on the agenda,” she said.

The board also sounded a warning in its post-meeting statement.

“Inflation in underlying terms remains too high, and the latest projections show that it will be some time yet before inflation is sustainably in the target range,” the statement said.

“Data have reinforced the need to remain vigilant to upside risks to inflation and the board is not ruling anything in or out.”

Earlier, Treasurer Jim Chalmers welcomed the decision to pause interest rates.

“This is a welcome decision from the Reserve Bank because it recognises the pressures that people are under, the progress we’ve made on underlying inflation, but also the severe market volatility we’ve seen and global economic uncertainty more broadly,” he said.

“Australians are doing it tough enough already. The last thing they needed today was more cost-of-living pressure.”

He said the hands-off move offered certainty to borrowers and small business owners, “who are already under pressure”.

“We have made really substantial progress in the fight against inflation. But we know that inflation can be sticky and stubborn, and [the RBA has] described that in their statement today,” Chalmers said.

“Headline inflation is more persistent than what we want it to be, but it’s less than half its peak, and much lower than the 6.1 per cent we inherited at the [2022] election.”

Refreshed economic forecasts from the RBA on Tuesday have headline inflation brushing the top of its 2 to 3 per cent target band at 3 per cent by the end of the year.

That represents a sizeable 0.8 percentage point revision to reflect government energy subsidies and cost-of-living help.

Chalmers said the cost-of-living relief had been targeted and responsible in a time of global uncertainty.

“That’s what today’s decision recognises. It wasn’t that long ago that people were calling for much higher interest rates, and I think what we’ve seen here is a welcome outcome because it recognises that we can continue the fight against inflation without smashing our economy,” he said.

As rebates expire in mid-2025, headline inflation is expected to jump back up to 3.7 per cent by the end of next year, before eventually returning to target again by late 2026.

Trimmed mean inflation, which removes major price changes at either end and helps the central bank look through temporary price bumps like expiring energy bill relief, was much closer to May’s predictions. However, it was nudged a little higher over the forecasting period.

The trimmed mean is still forecast to fall back within target by December 2025, the same as predicted in May.

Shadow treasurer Angus Taylor said it was clear the government’s budget measures were delaying a return to the central bank’s inflation targets.

“It has taken way too long to break the back of inflation. Our inflation is stuck at a persistent level around 4 per cent – and, as I said, the Reserve Bank is seeing that inflation staying higher for longer than its previous forecasts back in May. It is clear that inflation is running the economy, not the government,” he said.

Higher interest rates have already slowed the economy substantially but stalling progress on inflation suggests interest rate cuts are at least a few months away.

The central bank remains focused on delivering a “soft landing”, which involves weakening the economy enough to beat inflation without causing a recession and a surge in unemployment.

-with AAP