The Reserve Bank of Australia has resisted pressure to ease cost-of-living pain, opting on Tuesday to maintain interest rates at 4.35 per cent for a 12th consecutive month.

Quarterly data released last week showed that inflation had eased to 2.8 per cent in the September quarter, its lowest level in more than three years and back within the RBA’s 2 to 3 per cent target band.

The underlying inflation rate – a trimmed mean measure that is watched closely by the central bank – came in at 3.5 per cent. 

The result was down from 3.9 per cent in June, but outside the desired range.

RBA governor Michele Bullock told reporters after the decision that inflation is still too high to justify mortgage relief.

“It was appropriate to leave the cash rate where it is,” Bullock said.

“Underlying inflation in the September quarter is still too high.”

Treasurer Jim Chalmers acknowledged on Tuesday that another pause will “make life harder for people who are already doing it tough”.

“Inflation has moderated in our economy since those peaks that we saw last year, and our economy has slowed,” Chalmers said.

“But inflation is still a feature of our economy and inflation has been resistant in recent months.”

Strong job creation and low unemployment further added to the case to keep rates on hold, although consumer spending has been weak in a sign interest rates are weighing on demand.

Both retail sales and household spending data from the Australian Bureau of Statistics point to sluggish spending, even as federal government tax cuts boost incomes.

“Sustainably returning inflation to target within a reasonable time frame remains the [RBA] board’s highest priority” the RBA said.

“This is consistent with the RBA’s mandate for price stability and full employment. To date, longer-term inflation expectations have been consistent with the inflation target and it is important that this remains the case.”

The RBA will also pay close attention to developments in the global economy and financial markets, trends in domestic demand, and the outlook for inflation and the labour market.

CoreLogic research director Tim Lawless said markets had rated only a 5 per cent chance that the RBA would cut rates in November.

“At the very least, the decision to hold interest rates at 4.35 per cent should provide a further boost to household confidence, with clear signs inflation is moving in the right direction,” Lawless said.

“The next move is likely to be down.”

Oxford Australia head of macroeconomic forecasting Sean Langcake said before the RBA announcement that services prices – including insurance, health, education and rents – are still rising too quickly for rates to fall.

“It’s not good, and it’s the part of inflation that is uniquely Australian,” Langcake explained.

Finder tracking suggests rates of mortgage stress are sitting around record levels, with 47 per cent of home owners surveyed struggling to meet their repayments in October.

“The good news is that 2025 will almost definitely bring multiple rate cuts,” Finder’s head of consumer research Graham Cooke said.

Economists at all four big banks have tipped the RBA to start slashing rates in February.

Chalmers this week said Australia was making “welcome, encouraging, heartening progress in the fight against inflation”.

“But we know that people are still doing it tough and the fight is not over yet,” he said.