By Poppy Johnston in Canberra

Reserve Bank of Australia governor Michele Bullock warns the board “will not hesitate to raise interest rates” if inflation proves more persistent than thought.

Mirroring the assertive tone struck at Tuesday’s monetary policy meeting, the head of the central bank said inflation was “still too high” and services prices, such as rents and insurance, were proving “very sticky”.

The board decided to keep interest rates on hold at 4.35 per cent at the August meeting – where it’s been since November – and push back on expectations of a near-term cut.

“On balance, the board decided to keep interest rates on hold, judging that such an outcome would still meet the board’s mandate to balance its inflation and employment objectives,” Ms Bullock said during the Rotary Club of Armidale Annual Lecture on Thursday.

“But the board remains vigilant with respect to upside risks on inflation and will not hesitate to raise rates if it needs to,” she added.

Demand for goods and services was still higher than the economy’s ability to supply them, as canvassed in detail in the central bank’s updated economic assessment dropped on Tuesday. This was keeping upwards pressure on prices.

While growth in demand had been slowing, Ms Bullock stressed that was from a high base – with people spending big shortly after pandemic lockdowns ended.

“So even though demand growth has been fairly weak recently, this slowing has not been enough to restore balance in the economy,” she explained on Thursday.

In addition, the central bank was expecting demand to pick up over the next 12 months – though this was uncertain – prompting the RBA to push back its expected timeline for inflation to return to target.

Prime Minister Anthony Albanese denied Commonwealth spending was the primary driver for persistent inflationary pressures and a longer wait for interest rate cuts.

“(Our) measures are designed in a way to assist people who are doing it tough whilst we make sure that we continue to moderate inflation.

“We’ve made sure fiscal policy, budget policy, works arm in arm with monetary policy.”

But shadow treasurer Angus Taylor said the lack of rate cuts meant government action had failed in its bid to lower inflation.

“You need to contain the growth in spending. Containing the growth in spending is the key,” he told ABC Radio.