RBA governor warns rate cuts not on near-term agenda

Mortgage-holders have a while to wait for repayment relief as the head of the Reserve Bank of Australia warns a near-term interest rate cut is not on the cards.

Australia's central bank left interest rates unchanged at 4.35 per cent as widely expected, following comfortable June quarter inflation figures and volatility in global markets stemming from fears of a US recession.

Yet the RBA struck an assertive tone, warning underlying inflation was still "too high", a hike was a "very serious consideration" and nothing was being ruled out.

Governor Michele Bullock also warned markets were getting "a bit ahead of themselves" on easing and, in a rare piece of forward guidance, stated "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," she said in the post-meeting press conference.

"I understand that this is not what people want to hear."

Rates have already started coming down in Canada and Europe and the US Federal Reserve has been signalling easing in September.

Yet concern remains about underlying inflation which has now been above the midpoint of the target for 11 consecutive quarters, as observed in the post-meeting statement.

Ms Bullock said the board was still concerned about the "degree of excess demand in the economy".

"What I mean by that is the amount of goods and services that households and businesses and government want to buy, that's more than the amount that the economy can sustainably provide supply," she said.

ANZ head of Australian economics Adam Boyton suggested the RBA was adopting an increasingly hawkish posture.

"At the risk of reading too much into the RBA's words, if anything we'd view it as more hawkish than June and May," he said.

The bank's economic team still expects the next move to be down, predicting the first cut in February 2025.

"Given the tone of today's statement, a rate cut this year would most likely require a much more rapid deterioration across the activity side than we expect," he said.

Refreshed economic forecasts from the RBA had headline inflation brushing the top of the target band at three per cent by the end of the year, a sizeable 0.8 percentage point revision to reflect government energy subsidies and cost-of-living help.

Yet as those 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 finally returning to target by late-2026.

Trimmed mean inflation, which removes major price changes at either end and helps the RBA look through temporary price moves like expiring energy bill relief, was nudged a little higher over the forecasting period.

The all-important trimmed mean is still returning to target by December next year, as forecasted in May, though it will take a little longer to reach 2.6 per cent - just shy of the middle of the two-three per cent target.

It is forecasted to hit that point in late 2026, rather than in the middle of that year.