Reserve Bank keeps interest rates on hold in December but leaves ...

The Reserve Bank has left interest rates on hold in December for a ninth-straight meeting, but opened the door to a rate cut as soon as February.

The RBA kept its cash rate target at 4.35 per cent after a two-day meeting, a level it has been at since November 2023.

That is despite Australia's economy recording its weakest annual growth rate in decades — outside of the pandemic — in the September quarter and inflation at a more-than-three-year low.

In its post-meeting statement, the RBA board said despite inflation falling from its peak in 2022, it wanted to see further easing.

"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," the statement read.

"Recent data on inflation and economic conditions are still consistent with these forecasts, and the board is gaining some confidence that inflation is moving sustainably towards target."

This is a change in language from the board's November statement, which said it needed to "remain vigilant to upside risks to inflation" and was "not ruling anything in or out".

The Australian dollar fell in reaction to the news, indicating traders now saw a greater chance of earlier interest rate cuts.

Capital Economics described the statement as "rather dovish", but maintained its call that the first rate cut would not come until May.

"While the board had argued in November that it would need to see more than one good quarterly inflation print to be confident that price pressures are easing, the board has since learned that consumption growth isn't recovering as quickly as it had expected," Capital Economic's head of Asia-Pacific Marcel Thieliant said.

"All this opens the door to a rate cut at the bank's February meeting, though it's worth noting that the unemployment rate is on track to undershoot the bank's November forecast.

"With the unemployment rate still below the RBA's estimate of full employment, we suspect that the Bank will want to see a further loosening of the labour market before cutting interest rates."

The board's statement noted weak growth in the September quarter, with the economy expanding by just 0.8 per cent over the past year.

"Past declines in real disposable income and the ongoing effect of restrictive financial conditions continued to weigh on household consumption spending, particularly on discretionary items," it read.

"Taking account of recent data, the board's assessment is that monetary policy remains restrictive and is working as anticipated.

"Some of the upside risks to inflation appear to have eased and while the level of aggregate demand still appears to be above the economy's supply capacity, that gap continues to close."

The next chance borrowers have for a reprieve is in February.

RBA governor Michele Bullock will hold a press conference at 3:30pm AEDT.