The Reserve Bank has left interest rates on hold for the second straight meeting but governor Michele Bullock has hinted it could still hike rates, with inflation expected to remain high until the middle of next year.

In a unanimous vote of all nine monetary policy board members, the cash rate was left unchanged at 4.35 per cent on Tuesday afternoon despite headline and underlying inflation both being above the RBA’s 2-3 per cent target for almost a year.

“The board will raise interest rates further if that is what’s required to bring inflation down in a timely way,” Ms Bullock told reporters in Sydney.

“In waiting, the board isn’t ruling out there might be a need for further interest rate rises if we look like we’re off a path which takes us with inflation remaining above the target for much longer than in the forecasts.

“We’re not ruling that out but we’re saying we want to get a bit more information to confirm whether or not we still seem to be on that path.

“Before anyone asks, no, the board did not discuss an interest rate cut at this meeting — it only discussed a raise and a stay.”

The Reserve Bank’s latest statement on monetary policy also warned of weak economic growth rates below 2 per cent persisting into 2027 and 2028 as a result of weak productivity, which risks keep inflation at elevated levels, but there was no analysis on how Labor’s new 30 per cent capital gains taxes could affect business investment.

“I would say that we’re definitely not experts in the way that either the impact on housing prices or the impact on business investment,” Ms Bullock said.

“I actually don’t know how some of these taxes are going to affect business investment and some of them aren’t even in yet.”

Interest rates were last left on hold at the June meeting, following three increases in February, March and May.

“While the impact of the Middle East conflict on inflation has so far been less than expected, headline inflation is still too high,” the Reserve Bank said in a statement.

“Trimmed mean inflation also remains elevated and is little changed from the March quarter.”

The Reserve Bank on Tuesday also updated its forecasts to have inflation remaining above target until June 2027, by which time headline inflation would fall to 2.8 per cent, down from 3.8 per cent in June, as underlying, trimmed mean inflation eased to 3 per cent, down from 3.6 per cent.

Both measures of inflation were not expected to fall to the mid-point of the RBA target band until the end of next year, with the Reserve Bank worried about higher oil prices flowing through to other goods.

“The disruption to global oil supply is adding directly to inflation and there are indications that higher fuel prices are being passed through to prices of other goods and services, so inflation is likely to remain high for some time,” it said.

“This inflation impulse is in addition to the effect of capacity pressures in the economy.”

Unemployment was expected to rise to 4.8 per cent by mid-2028, up from June’s level of 4.4 per cent, above the 4.6 per cent level considered to be full employment.

KPMG chief economist Brendan Rynne said another hike in 2026, taking the cash rate to a 15-year high of 4.6 per cent, was still a possibility.

“Today’s decision was no surprise, but we still believe the RBA has left the door open to another rate increase later this year,” he said.

“The board remains concerned that the economy is operating above its sustainable capacity, which means inflationary pressures are likely to persist.”

Deloitte Access Economics partner Stephen Smith said the RBA was simply waiting to see if previous increases would push up unemployment.

“Somewhat softer labour market and a broadening housing downturn have provided an opportunity for the Reserve Bank to wait and see,” he said.

“Against this backdrop, today’s relatively dovish statement from the monetary policy board together with the accompanying forecasts indicate the Reserve Bank increasingly feels its job may be done in the absence of a further upside inflation surprise.

“However, another rate rise in 2026 cannot be fully ruled out.”

Treasurer Jim Chalmers said it was too soon to celebrate.

“Inflation has now moderated three months in a row but it’s still higher than we’d like and people are still under pressure,” he said.

“Recent inflation data has been a bit better than expected but the war in the Middle East is putting upward pressure on prices and weighing on global and domestic growth.”

Shadow treasurer Tim Wilson said Labor spending was keeping interest rates high, with the Reserve Bank previously noting government payments were adding to overall demand in the economy.

“The Reserve Bank’s hand has been forced to keep interest rates high on struggling families and Australian households because the Albanese government can’t kick its spending addiction and active inflation agenda,” he said.

The futures market had been widely expecting the Reserve Bank on Tuesday afternoon to leave rates on hold after official inflation data for June showed headline inflation, also known as the consumer price index, declining to 3.8 per cent, down from an annual pace of 4 per cent in May.

Headline inflation moderated to levels last seen in February before the US strikes on Iran led to a surge in crude oil prices, after the Federal Government had temporarily halved fuel excise and GST by 32 cents a litre.

However, the CPI and the underlying, trimmed mean inflation rate of 3.6 per cent in June were both above the RBA target for the 11th consecutive month.

Fuel tax relief of 16 cents a litre expired earlier this month, which means headline inflation could still increase again.