Falling house prices and lower-than-expected inflation helped convince the central bank's nine-member monetary policy board to leave the cash rate untouched at 4.35 per cent on Tuesday.
The unanimous decision had been widely expected by economists and money markets following relatively benign inflation figures released in late July.
Following three interest rate rises since the beginning of 2026, financial conditions had tightened and the economy appeared to be slowing as expected, the board said in its accompanying statement.
But governor Michele Bullock was eager to rein in market expectations the RBA might have declared its hiking cycle was over.
Both headline and underlying inflation remain substantially above the bank's two to three per cent target range and new forecasts released by the RBA showed inflation is expected to remain above 2.5 per cent until early 2028.
With the Middle East oil disruption showing no sign of ending soon, the global AI investment boom spurring stronger demand for chips and El Nino threatening to drive up food prices, the risks are more weighted to inflation overshooting rather than undershooting forecast.
In her post-meeting media conference, Ms Bullock reiterated the board would have no qualms raising interest rates again if the upside risks to inflation materialised.
The board had considered a rate hike at the meeting but decided to hold out for more information to assess how the economy unfolds.
"The message today is that, in waiting, the board isn't ruling out that 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," Ms Bullock said.
EY Oceania chief economist Cherelle Murphy said the decision should be viewed "as a hawkish pause, not a signal that the tightening cycle has ended".
Traders initially took a dovish signal from decision before settling back down after Ms Bullock warned of more rate hikes in her news conference.
Following the decision, the ASX200 jumped 25 points before retreating to end the day up 18 points or 0.19 per cent.
The Aussie dollar dropped against the greenback as low as 70.40 US cents before climbing to 70.52 US cents after the press conference.
While inflation risks were weighted to the upside, if the housing market deteriorated faster than expected, it could weigh on household consumption and take more steam out of the economy, RBA staff said in the Statement on Monetary Policy.
Spurred on by changes to property investor tax breaks in the federal budget, housing prices have fallen 1.6 per cent nationally from their March peak.
Ms Bullock conceded the downturn has exceeded her expectations.Â
Whether it will prevent the bank needing to lift rates further will depend on the economy easing enough to bring demand back below supply, which will in turn impact how much firms are able to pass on higher prices and contribute to inflation.
Treasurer Jim Chalmers said it was a "welcome decision at a time of heightened uncertainty in the world and persistent pressures at home".
"This decision reflects the fact that inflation has been coming in well under the Reserve Bank and Treasury forecasts," he said.
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