Citing inflation that is likely to remain above target into 2026, the Reserve Bank of Australia (RBA) kept its key policy interest rate unchanged at 4.35%, but hinted at monetary easing in 2025.

The RBA "is gaining some confidence that inflation is moving sustainably towards target," said the central bank in a prepared statement.

The RBA has an inflation target band on the nation's consumer price index (CPI) of 2% to 3% annually.

However "measures of underlying inflation are around 3.5%, which is still some way from the 2.5% midpoint of the inflation target," advised the RBA.

"The most recent forecasts published in the November Statement on Monetary Policy (SMP) do not see inflation returning sustainably to the midpoint of the target until 2026."

Like many other nations, Australia sustained a bout of inflation during and in the aftermath of the COVID-19 pandemic.

Australia's inflation rate generally held to within the RBA targets in the pre-pandemic era, but under fiscal and monetary easing and the supply-chain snags that followed 2019, the nation's official inflation rate crested at 8.4% on year in December of 2022.

Fighting the above-target inflation rate, the RBA raised its policy cash interest rate from 0.10% in April of 2022 to 4.35% in December of 2023, and has maintained that rate, at a 13-year high, ever since.

The RBA acknowledged that its regimen of higher interest rates is having some role in the nation's sluggish economic expansion. "Growth in output has been weak. National accounts for the September quarter show that the economy grew by only 0.8% over the past year," said the RBA.

All told, the Australian central bank may start easing in 2025, said one observer.

The RBA "reiterated that underlying inflation remains high and the outlook is too uncertain, however it did indicate that inflation is moderating, and the (bank's policy) board is gaining some confidence that inflation is moving sustainably towards the target," said ING Think, an arm of the Dutch investment house.

ING Think added, "On balance, we maintain our call for a rate cut in the first quarter of next year, but it remains an 'at the earliest' view, and there is certainly scope for this to be pushed back especially if the consumption data improves over the next few months."