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The Reserve Bank has left interest rates on hold at its first meeting of the year after inflation fell by more than expected towards the end of 2023.
It means the cash rate target remains at 4.35 per cent.
The decision to keep rates on hold had been widely anticipated, with few analysts expecting another rate hike.
However, an increasing number of economists now expect the RBA to start cutting rates in the second half of this year as inflation continues to moderate.
In the December quarter, inflation was running at an annual pace of 4.1 per cent, down from 7.8 per cent 12 months earlier.
Inflation easing, but global outlook is highly uncertain
In its post-meeting statement, the RBA board said inflation had clearly eased but it was still high at 4.1 per cent.
It said goods price inflation had fallen faster than the bank had forecast, but services inflation was only moderating gradually.
It said its central forecast was for inflation to return to the target range of 2 to 3 per cent in 2025, and to the midpoint of that range in 2026.
It warned there was a high level of uncertainty around the outlook for the Chinese economy, the consequences of the conflicts in Ukraine and the Middle East, and how those might impact Australia's economy.
It said further increases in interest rates couldn't be ruled out, and the board would continue to pay close attention to developments in the global economy, trends in domestic demand, and the outlook for inflation and the labour market.
Anneke Thompson, chief economist at CreditorWatch, said the RBA's decision was made alongside a wealth of data pointing to both slowing inflation and a slowing economy.
"At 4.1 per cent, the December inflation figure is still too high for the board to consider a rate cut today, however, all indicators point to inflation falling faster than last year's forecasts, and this may well result in a decrease to the cash rate some time in the middle of the year, rather than the latter half," she said.
"Inflation is also falling rapidly in major overseas economies, and central banks in the USA, UK and Europe are likely to consider cuts to their interest rates over the next few months," she said.
Not ruling out another rate rise
In a press conference after the interest rate decision, RBA governor Michele Bullock said inflation had moderated recently, but the RBA may still have to lift rates again if conditions demanded it.
"We are not ruling in or out anything," she said.
"We are focused on bringing inflation down. We still think the risks are balanced but as you would know, the further out we go with our forecasts the more uncertainty there is around them."
She acknowledged that before Tuesday's rates announcement markets were pricing in a high likelihood of two rate cuts this year, but she said there was a difference between how the RBA was thinking about the likely path for interest rates and how participants in financial markets were thinking about things.
"We don't think about market pricing as being a forecast of our own cash rate," she said.
"Markets will make their own decisions and they're putting their money where their mouth is on those sorts of things. But we're not really driven by market pricing.
"What's important for us is looking at the economic data. We want to see that inflation continues to decline."
She also said she was confident Australia's economy was still treading the "narrow path" where inflation will continue to fall without economic activity or employment suffering too much.
"I feel that we are potentially on that narrow path," she said.
"But I also feel that we need to just remain alert to the risks on both sides. If inflation does not move back into target within a reasonable time, and if it's still well above our target band in a few years time that will not be good for inflation expectations and ultimately it will not be good for the economy," she said.