Households will need to wait a little longer before interest rates come down, with recent inflation figures not quite low enough to convince the Reserve Bank to cut rates just yet.

The official interest rate will stay at 4.35%, the RBA board decided at its meeting on Tuesday.

The decision hinged on key inflation data released by the ABS last week, which showed the Consumer Price Index (CPI) rose 1% during the June quarter and 3.8% over the year. The quarterly rate of inflation remained steady, but the annual rate was slightly higher compared to last quarter’s result of 3.6%.

However, the trimmed mean — which strips out volatile price changes and is the RBA’s preferred measure of underlying inflation — declined compared to last quarter, giving the board confidence that inflation was easing in line with its forecasts.

While some optimistic economists are predicting rate cuts as soon as November, RBA governor Michele Bullock poured cold water on suggestions that the board could cut rates soon.

At a press conference following the meeting, Ms Bullock said the board considered both a rate rise and a hold, but said a rate cut was “not on the agenda in the near term.”

“A near-term reduction in the cash rate doesn't align with the board’s current thinking,” she said.

"I understand this is not what people want to hear.” “The board’s feeling is that in the near term — by the end of the year and the next six months — that doesn't align with their thinking about interest rate reductions at the moment.”

PropTrack director of economic research Cameron Kusher said inflation remained too high, and the job to rein it in wasn't done yet.

“There had been speculation that the RBA may have increased the cash rate at this meeting," he said.

"However, with the June quarter inflation data being more aligned with expectations, inflationary concerns have been allayed for the time being."

"While we should remain cautious to the prospect of interest rates rising if inflation doesn’t slow, economic data from the US published last week showed a significant weakening of the labour market and heightening expectations of an economic slowdown in the US.

"This could reduce the likelihood of further interest rate rises here and potentially result in rates being cut sooner.” The decision to keep interest rates steady was widely expected, with none of the big banks anticipating a rate hike and cuts not expected for at least a few more months.

Commonwealth Bank head of Australian economics Gareth Aird said the RBA's overall message was a little more hawkish than anticipated, but maintained that disinflation would still prompt the RBA to cut rates by the end of the year.

“Given the RBA is highly data dependent it will ultimately be the data that determines the outlook for monetary policy,” he said.

“We believe the data will continue to evolve in a way that sees the RBA cut the cash rate in November.”

Prior to the release of quarterly inflation data, financial markets were pricing in a 25% chance of a rate hike at the August meeting.

After the inflation data was released, markets were pricing in a 5% chance of a rate cut at the August meeting, although that likelihood increased to 20% on Monday after the worse-than-expected US economic data spooked investors and triggered the biggest two-day decline in the share market since the pandemic.

The ASX 200 plunged 3.7% on Monday following a 2.1% fall on Friday. By close of trading on Tuesday, the market had rebounded 0.41%. The cash rate has been increased 13 times since May 2022, although has been kept on hold since the last rise in November last year, when inflation was close to its peak.

In a statement following the meeting, the RBA board said inflation had fallen substantially since peaking in 2022, but the latest data showed inflation was proving persistent and remained outside the 2-3% target band. "The latest projections show that it will be some time yet before inflation is sustainably in the target range," the board said. "Policy will need to be sufficiently restrictive until the board is confident that inflation is moving sustainably towards the target range."

Big banks predict rate cuts within months

While borrowers will need to tolerate high interest rates for a little longer, two of the big banks expect the first interest rate to come in three months' time, at the RBA’s November board meeting.

Both Commonwealth Bank and Westpac have predicted a 25 basis point rate cut in November, while ANZ is a little more conservative, tipping a rate cut in February. Westpac chief economist Luci Ellis said rate cuts would need to come before inflation reaches target because monetary policy operates with a lag. “The latest data show that inflation is indeed declining back towards its 2% to 3% target range broadly at the pace that the Reserve Bank is trying to achieve, and that means that it will soon be time to start cutting interest rates.”

“Rate cuts are on the cards — not immediately, but provided things turn out as we expect over the next few months… we still think that the most likely start date is at the November meeting.”

NAB economists offer the gloomiest prediction of the big four banks, anticipating the first cut to come in May, although expect 125 basis points worth of cuts will be delivered over the subsequent 12 months.

Home prices hit new record despite interest rate pressures.

Although interest rates remain at the highest point in 12 and a half years, Australia’s median home value hit a new record high in July, according to the PropTrack Home Price Index. However, prices lifted nationally by only 0.08% — the smallest monthly increase recorded since prices stopped falling in late 2022. High interest rates and affordability challenges have resulted in higher home price growth in areas offering relative affordability. Price growth has been strongest over the past year in Perth, where prices were up by almost 23% compared to 12 months ago, followed by Adelaide with almost 15% growth in values and Brisbane at about 14%. Meanwhile, affordable regions in Sydney’s west have grown in value at more than twice the rate of pricier parts of the city in the north and east.

Mr Kusher said the rate of growth in home prices had slowed over the past five months, but the market remained strong.

"Despite slowing price growth, more properties are being listed for sale and sales volumes remain robust," he said.

“The labour market remains tight with strong job creation alongside low unemployment and underemployment. Demand for credit and the value of housing finance commitments continues to expand."

"Stable interest rates are likely to support vendor and purchaser confidence as we head into the busier spring period."

RBA expects slightly slower return to inflation target

In its quarterly statement on monetary policy released at the same time as the cash rate decision, the RBA's updated forecasts now have inflation returning to target slightly slower than expected in May.

“Underlying inflation is expected to ease more gradually than previously anticipated, falling below 3 per cent by late 2025 and approaching the midpoint of the band in 2026,” the report stated.

“The forecast for underlying inflation has been revised higher from mid-2025 to reflect the assessment that there will be a little more excess demand in the economy than previously estimated.” Another change in the forecast is the assumed path of the cash rate, which is an assumption derived from financial market pricing for the purposes of modelling, rather than a prediction by the RBA.

“A 25 basis point reduction in the cash rate is fully priced in by early 2025, and the cash rate is expected to decline to around 3.3 per cent by the end of 2026,” the report stated. The previous forecast in May assumed the cash rate would come down to about 4.2% by June next year before falling to 3.8% by mid-2026. The updated forecast now assumes the cash rate will fall 50 basis points lower over the same period.