Interest rates have been left on hold - for now. Here's what could happen next

The Reserve Bank has again kept interest rates on hold at 4.35 per cent. This is what could influence it to cut - or increase - them.

RBA governor Michele Bullock said the central bank couldn't rule out further rate hikes. Source: AAP / Dean Lewins

Mortgage holders have been given a temporary reprieve after the Reserve Bank of Australia (RBA) left interest rates on hold at 4.35 per cent.

It's the second meeting this year where the central bank has kept the cash rate target unchanged.

But RBA governor Michele Bullock warned the board wasn't ruling anything in or out in the future — including rate cuts and rises.

Could interest rates rise?

The RBA started hiking rates from record lows in May 2022 in a bid to curb spending and bring inflation back to its target range of between 2 and 3 per cent.

Its most recent forecast expects inflation — which is currently sitting at 4.1 per cent — to drop into the target band next year, with the midpoint of the range to be reached in 2026.

"We're making progress in our fight against inflation, but it does remain high," Bullock said on Tuesday.

"Recent data suggests we're on the right track, but the interest rate path that best ensures we bring inflation back to target does remain uncertain."

Interest rates are currently sitting at a 12-year-high of 4.35 per cent. Source: SBS News

Given the lack of certainty, Bullock said future rate rises weren't off the table.

"We're not confident enough to say we can rule out further interest rate changes," she said.

"There are risks on each side, that's why the board is being cautious on rates at the moment.

"As we get more data and more information, if it confirms our forecasts, then that will be good for us and we'll be able to say, 'Okay, we're on the right path', but if some of those things come to pass and it doesn't look like the data is moving our direction, then we have to consider how to move."

What will it take for interest rates to be cut?

Bullock said that for the RBA board to consider a rates cut, they would need to be "much more confident" that inflation would return to the target band "in a reasonable timeframe" — and stay there.

"The central forecasts have it (inflation) not coming back into the band until 2025, so if we were to see some acceleration and get some more confidence that we are over-achieving there, then possible rate cuts might be something on the agenda," she said.

"At the moment we're not seeing that. We're in a position where we're cautious; we want to wait and see."

The RBA's next board meeting will be held on 7 May.