Reserve Bank keeps interest rates at 4.35pc for eighth-straight ...

The Reserve Bank of Australia has kept interest rates on hold at 4.35 per cent for its eighth-straight meeting, despite inflation falling to its lowest level in almost four years.

Economists and analysts almost unanimously expected the central bank to leave the cash rate at its highest level since November 2011.

While headline inflation fell to 2.8 per cent in the September quarter — the lowest level in three-and-a-half-years — the RBA said it remained too high to consider cutting rates.

Tuesday's decision also marked 12 months since the RBA last increased interest rates by 0.25 percentage points.

In a statement, the RBA said while inflation has "fallen substantially" since it peaked in 2022, underlying inflation remained too high at 3.5 per cent in the September quarter.

The bank's revised economic forecasts, released on Tuesday in its Statement on Monetary Policy, does not expect inflation will reach the mid-point of its 2-3 per cent target until 2026.

"While headline inflation has declined substantially and will remain lower for a time, underlying inflation is more indicative of inflation momentum, and it remains too high," it said.

"The November SMP forecasts suggest that it will be some time yet before inflation is sustainably in the target range and approaching the midpoint.

"This reinforces the need to remain vigilant to upside risks to inflation and the Board is not ruling anything in or out.

"Policy will need to be sufficiently restrictive until the Board is confident that inflation is moving sustainably towards the target range."

The central bank does not expect so-called core or "underlying" inflation to reach 3 per cent until the June quarter next year.

Speaking during Question Time, Treasurer Jim Chalmers said the RBA's revised inflation forecasts showed the Australian economy was on track to achieve a "soft landing".

"What this shows is that we've been able to fight inflation without ignoring risks to growth and without sacrificing the gains that we have made in the labour market," Mr Chalmers said.

"We have struck the right balances by taking the right economic decisions for the right economic reasons. Because of that, we are confident but not complacent about a soft landing in our economy."

RBA governor Michele Bullock at post-interest rates meeting press conference in September 2024. (AAP: Dan Himbrechts)

Speaking at a post-meeting press conference, RBA governor Michele Bullock expanded on why the central bank maintained its statement of "not ruling anything in or out".

"We do think that there are still some risks on the upside," she said.

"The underlying inflation that we're experiencing is still sitting at around about 5 per cent for services. That's still a significant amount of inflation in the system.

"What that's suggestive of is that demand is still above supply, which we talked about before, and we still have a labour market which looks on the tighter side.

"There are some signs that some of the easing in the labour market might have stabilised a bit … so there's just some things at the edges that suggest that there might be a little bit of upside risk in here. So that's why I say we can't rule anything in or out."

Asked whether households could expect a rate cut in the first half of 2025, Ms Bullock refused to be drawn on the suggestion.

"What I would say is that I think at the moment we've got the right settings. We think monetary policy is restrictive, and that's showing up in a number of parts of demand, including private-sector demand," she said.

"We will assess the information as it comes through … and we will try to make sure that we're tuned in enough that if things start to turn down more than expected that we're ready to act. But we don't know."

People walking through Sydney CBD on a cool day. People are walking either side of an ING bank savings account advertisement. (AAP: Bianca de Marchi)

In the lead-up to the RBA's decision on Tuesday afternoon, all four of Australia's major banks forecasted interest rate cuts from the central bank in early 2025.

Economist Abhijit Surya from Capital Economics believes the RBA will cut rates early next year, despite its "broadly neutral tone".

"We still think it will start to lower interest rates as soon as February next year," he said.

"As it has done in recent months, the board reiterated its view that underlying inflation was still too high and that it would 'remain vigilant to upside risks to inflation'."

Mr Surya, however, said there was a possibility that underlying inflation would reach the top of the RBA's 2-3 per cent band even sooner than its new mid-2025 prediction.

Ivan Colhoun, the chief economist with CreditorWatch, agreed that rate cuts were likely in the first half of 2025.

"But we shouldn't be holding our breath for a lot of interest rate cuts in Australia," he told ABC News Channel.

"Some modest interest rate cuts through next year, through the first half, I think that is likely."

Money markets have priced in a rate cut in the first six months of 2025.

The RBA noted that while higher rates were "working broadly as anticipated", there were a number of uncertainties, including the outlook overseas.

"Public authorities in China have responded to the weak outlook for economic activity by implementing more expansionary policies, although the impact (and in some cases the specific details) of these measures remains to be seen," it said.

"Geopolitical uncertainties remain pronounced."

However, Ms Bullock did not explicitly mention the looming US presidential election as a potential risk factor yet, labelling it "premature".

"The United States people are going to make a choice. Once we find out what that is and what the policies of that particular person elected into administration is, then we can make decisions about what that might imply for the world economy," Ms Bullock said.

"I think it's premature to actually do it ahead of that."

The RBA's decision to leave interest rates unchanged after November's two-day meeting comes as central banks overseas continue cutting rates.

The US Federal Reserve is meeting on Thursday, local time, where it is expected to reduce interest rates by 0.25 percentage points, after reducing them by 0.5 percentage points in September.

While Ms Bullock did not comment on how substantially the RBA would cut interest rates when the time, she stressed that they would not return to the historically low levels seen during the pandemic.

"When interest rates are coming down overseas, as they are, and if and when they start to come down in Australia, they're not going back where they were in COVID," she said.

"I wouldn't like to put too much of a precise point on what the neutral rate is and therefore that's where we're heading, because it's very difficult and it's very uncertain.

"But … they're not going back to where they were in COVID. That was emergency settings."