Cash rate on hold at 4.35 per cent

The May decision was widely forecast after higher-than-expected inflation data was released in April.

Quarterly inflation rose from 0.6 per cent in the three months to December to 1 per cent in the three months to March. While the increase was expected, it was above the 0.8 per cent that was forecast.

However annual inflation was falling, coming in at 3.6 per cent in March, down from 4.1 per cent in December, the Australian Bureau of Statistics reported.

In its statement following the decision, the Reserve Bank board said inflation remained high.

"Recent information indicates that inflation continues to moderate, but is declining more slowly than expected," the board said.

The board said the outlook remained highly uncertain and the process of returning inflation to target was "unlikely to be smooth".

"The central forecasts, based on the assumption that the cash rate follows market expectations, are for inflation to return to the target range of 2-3 per cent in the second half of 2025, and to the midpoint in 2026," the board said.

"In the near term, inflation is forecast to be higher because of the recent rise in domestic petrol prices, and higher than expected services price inflation, which is now forecast to decline more slowly over the rest of the year.

"Inflation is, however, expected to decline over 2025 and 2026."

At a press conference following the decision, Reserve Bank governor Michele Bullock said the option to raise the cash rate was discussed at the meeting, but the board decided a hold was appropriate.

She did not rule out a cash rate rise in the future.

"We don't think we necessarily have to tighten again, but we can't rule it out," she said.

"If we have to, we will.

"If we really think that inflation is going to be persistent and significantly above our forecasts, we will tighten again."

Ms Bullock acknowledged the interest rate rises over the past two years had been "painful for many people".

Households should expect a "bumpy" journey ahead, she said.

"We believe we have rates at the right level to return inflation to the target range next year. But as we said in the past, getting inflation back to target will take time," Ms Bullock said.

"But I think the path will likely continue to be bumpy and we should all be prepared for that."

Devika Shivadekar, economist at assurance, tax and consulting firm RSM Australia, had forecast a cash rate hold in May.

She said inflation, while slightly higher than anticipated, was "broadly in line" with expectations and was coming down.

Ms Shivadekar said she expected the Reserve Bank would wait for the next two quarterly consumer price index releases before making any "pivotal decisions" on interest rates.

"Three consistent data points are so much better than just one single data point. So that's how I think the RBA will be thinking today," she said.

All 36 experts and economists surveyed by comparison website Finder predicted the Reserve Bank would hold the cash rate at 4.35 per cent in May.

Sean Langcake of Oxford Economics Australia said the stronger-than-expected inflation data pointed to a "concerning path ahead for Australia's disinflation cycle".

He expected the Reserve Bank to keep rates on hold until late 2024 but said a rate rise was unlikely.

"A hike in response to the inflation data would be a big change in their reaction function," he said.

In similar language used in its March statement, the board said it was "not ruling anything in or out".

"The board will rely upon the data and the evolving assessment of risks. In doing so, it will continue to pay close attention to developments in the global economy, trends in domestic demand, and the outlook for inflation and the labour market," it said.

"The board remains resolute in its determination to return inflation to target."

The May hold was the Reserve Bank's fourth consecutive cash rate pause.

There has been just one rise, a 25 basis point increase in November, since June 2023.

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