The Reserve Bank of Australia has kept interest rates unchanged and reworked its forecasts, with inflation returning to target by the end of the year before bouncing back towards the end of 2025.

The key interest rate was left unchanged at 4.35 per cent, where it has been since November last year.

Any case to lift rates fizzled out after quarterly inflation data landed broadly in line with central bank and market expectations.

In a post-meeting statement on Tuesday, the RBA board kept its options open on future moves.

“Inflation in underlying terms remains too high, and the latest projections show that it will be some time yet before inflation is sustainably in the target range,” the statement said.

“Data have reinforced the need to remain vigilant to upside risks to inflation and the board is not ruling anything in or out.”

Refreshed economic forecasts have 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 central bank 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.

The near-term outlook for economic activity has been revised higher, with growth forecasted at 2.6 per cent through to June 2025, up from the 2.1 per cent predicted by the bank in May.

At the same time, the jobless rate has been pushed a little higher over the forecasting period, to a peak of 4.4 per cent, up from the previous high of 4.3 per cent.

It’s expected to stay there from mid 2025 through to late 2026.

Demand for goods and services continued to exceed the ability of the economy to supply them, the RBA said in a statement on monetary policy, and “a little more than previously thought”.

“Firms continue to report that they are operating at relatively high levels of capacity utilisation, with input cost inflation remaining above longer run averages,” the central bank said.

The labour market was “a little tighter relative to full employment than previously thought”, reflecting still-constrained labour availability, high vacancies and strong wage growth relative to productivity performance.

This post was originally published on Michael West.