Financial markets were all but united in forecasting no change in the cash rate in August in what was dubbed a "straightforward" decision.
But in its Statement of Monetary Policy, the RBA pushed back the timeline for getting inflation within its target range of 2-3% until late 2025, approaching the midpoint in 2026, conceding "the pace of disinflation has slowed".
The new timeline is six months slower than the RBA forecast in its May statement, taking into account the impact of government spending among other economic factors.
In her post-meeting media conference, RBA governor Michele Bullock said government energy rebates were "not significant".
She noted they were likely to suppress underlying inflation in the short term but could have the effect of lifting it beyond that.
Ms Bullock confirmed a cash rate rise was discussed during the August meeting, but the board decided a hold in interest rates was the best course at the current time.
She also acknowledged the board considered recent volatility in global share markets, but she said it did not factor into the August decision.
The RBA's statement pointed out the economic outlook is uncertain while the process of returning inflation to target has been "slow and bumpy".
Inflation still the enemy
As expected, the RBA maintained its hawkish tone in "doing what is necessary" to bring inflation down despite last week's quarterly CPI data showing underlying inflation in the Australian economy eased slightly.
The prospect of a rate rise was all but snuffed out last week when the June quarter's annualised headline figure jumped to 3.8% from 3.6% in the March quarter, as widely expected, but trimmed mean inflation fell to 3.9% from 4%.
The trimmed mean inflation number, which disregards irregular or temporary CPI changes, is the RBA board's preferred inflation measure.
The lower-than-expected figure was enough to douse speculation of an RBA rate rise on Tuesday, with financial markets almost unanimously expecting the next cash rate movement will now be downwards.
Ms Bullock's post-meeting tone suggested an interest rate rise may have been more of a prospect than markets believed.
As usual, she remained steadfast in insisting inflation will need to be in the target range for the RBA board to be convinced to cut the cash rate.
Her old line of "not ruling anything in or out" appears again in the August statement.
Will the falling share market affect interest rates?
Ms Bullock revealed the board had been briefed on the recent volatility in equities markets and acknowledged it will "keep an eye" on developments.
Coinciding with the RBA's meeting on Monday and Tuesday has been a sharp sell-off on global share markets.
Investors are spooked by fears of a US recession sparked by worse-than-expected jobs data amid criticism the Federal Reserve has waited too long to begin cutting US interest rates.
Just last Wednesday, markets were buoyant on remarks from the US Federal Reserve boss that an interest rate cut in the US was on the table for September.
But that was before unemployment figures were released the next day.
Now there are calls for the Fed to deliver an emergency interest rate cut before its scheduled September meeting in a bid to avoid a US slide into recession and halt the meltdown in global stock markets.
At the close of trade on Monday, more than $100 billion had been wiped from the value of Australian shares in the biggest sell-off since the pandemic.
But by close of trade on Tuesday, the Australian Stock Exchange's benchmark index, the ASX 200, finished 0.41% higher, buoyed late in the session by the RBA's decision to hold the cash rate.
A plunging stock market could further advance the case for an interest rate cut from a markets perspective as it is often a bellwether for further economic headwinds.
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