Inflation is proving more persistent than hoped, though it's not yet clear if more interest rate hikes are needed to bring it to heel.
The Reserve Bank has released an updated set of economic predictions in its quarterly Statement on Monetary Policy (SOMP), as well as further insights into its decision to lift interest rates on Melbourne Cup day.
The board considered extending its four-month hold before opting for a 25 basis point hike at the November meeting, believing the "risk of inflation remaining higher for longer has increased".
Based on fresh forecasts, the consumer price index is still expected to be back within the two to three per cent target range at 2.9 per cent by December 2025, a touch above the 2.8 per cent rate predicted in August.
It is expected to be 3.3 per cent by mid-2025, above the 3.1 per cent previously forecast.
The predictions of more persistent inflation assumed further increases in the cash rate in line with financial market pricing and economists' expectations.
Those assumptions have the cash rate peaking at around 4.5 per cent - a little higher than the current rate of 4.35 per cent - before falling to roughly 3.5 per cent by the end of 2025.
There were also several other risks to the inflation outlook worrying the central bank, including potential global energy market disruptions and higher food prices related to El Nino.
The case for a pause was driven partly by signs of an easing labour market and below-trend growth.
"A further pause could also allow further time to consider how the evolving situation in the Middle East will affect the outlook for global activity and energy prices," the statement said.
"Whether further tightening of monetary policy is required ... will depend upon the data and the evolving assessment of risks."
ANZ economists said the statement did not change their view of the RBA keeping the cash rate at 4.35 per cent.
Yet senior economist at the bank, Adelaide Timbrell, said another hike was still in play.
"The assumed cash rate from market pricing is around 4.5 per cent by May 2024, which given the slow return of inflation to two to three per cent by the end of 2025, suggests that further tightening is possible," she wrote in a note.
NAB economists were still leaning towards a final increase to 4.6 per cent given the inflation forecasts were conditioned on one further partial hike.
Other tweaks to the outlook included a better short-term outlook for economic activity.
The economy has proved more resilient than expected to cost of living pressures and higher interest rates, but growth is still expected to remain below trend.
The central bank has also upwardly revised its expectations for employment growth, in part to reflect the fast-growing population that is both adding to labour supply and to overall demand for goods and services.
The unemployment rate has also been downgraded to a peak of 4.3 per cent, compared to the 4.5 per cent high point previously expected.
Wage growth is likely approaching its peak of around four per cent by the end of the year before softening to more like 3.6 per cent by late 2025, in line with an easing labour market.
