Green shoots are appearing for mortgage holders as the Reserve Bank of Australia sees more signs inflationary pressures are easing.

While keeping the cash rate on hold at 4.35 per cent on Tuesday, the central bank board made a more dovish pivot than most economists were expecting, improving the chances of a February cut.

Borrowers have been keenly awaiting interest rate easing, with the peak union body on Monday urging the RBA to act quickly to take pressure off working people with mortgages.

While governor Michele Bullock said neither a cut nor a hike were explicitly discussed at the two-day board meeting, she confirmed a deliberate shift in language to reflect “mixed” economic data “that was, on balance, a bit softer than we had expected”.

“This has given the board some confidence that inflationary pressures are declining, but risks remain,’ she said in the post-meeting statement.

“The board needs to be confident that inflation is moving sustainably towards the target,” she added.

“And for this to occur, we need to see more progress on underlying inflation coming down.”

Australia’s economic growth report for September undershot expectations, as did wage growth. 

Moody’s Analytics economist Harry Murphy Cruise highlighted a “considerable shift in tone” at the December meeting, including the disappearance of the phrase “not ruling anything in or out”.

“Ironically, that omission effectively rules out a hike,” he said. 

With another interest rate increase off the table and a dovish pivot under way, Mr Murphy Cruise said the inflation fight was entering its final stages. 

While still of the view May is the most likely time for easing to begin, there were indications it could come sooner.

AMP chief economist Shane Oliver said the RBA “should” start cutting in February but was sticking with his May call, for now. 

“As a result of weak growth and ongoing evidence of falling underlying inflation we think the RBA should be cutting sooner rather than later, ie, in February,” he said.

“But while the RBA has become more dovish, it still doesn’t appear to be in a hurry to cut as it waits for some more confidence ‘that inflation is moving sustainably towards target’.” 

After the decision, money markets were more optimistic about a February cut, pricing in a 65 per cent chance and nearly two cuts priced in by May.

Treasurer Jim Chalmers welcomed the RBA board’s improving confidence in the inflation outlook and said price pressures had been the government’s focus. 

“I’ve been focused on my job, which is fighting inflation without ignoring the very substantial risks to growth,” he told reporters on Tuesday. 

Shadow Treasurer Angus Taylor said it was clear the economy was “sick”. 

“It’s very clear from the statement that came from the Reserve Bank today that underlying inflation remains too high,” he told reporters on Tuesday. 

This post was originally published on Michael West.