RBA Governor Philip Lowe said there were still significant uncertainties in the global economy, particularly inflation and the “new supply shock”, which had been exacerbated by Russia’s invasion of Ukraine.

But Lowe said Australia’s booming job market was likely to continue and fall below 4 per cent from its current 4.2 per cent.

“If we reach this milestone, it would be a significant achievement,” he said.

But he said it was only possible to achieve a sustained period of low unemployment if inflation remains low and stable.

And he said while inflation posed a risk to the economy, Australia could afford to be patient about countering it with higher interest rates because wage growth was still low.

“In these circumstances we have scope to wait and assess incoming information and see how some the uncertainties are resolved,” Lowe said.

“We can be patient in a way that countries with substantially higher rates of inflation could not.”

However, the RBA said it had no contemporary experience of dealing with an unemployment rate below 4 per cent and it was still unclear what affect the re-opening of international borders would have on the job market.

“In this uncertain environment … we can take the time to assess the incoming information and review how the uncertainties are resolved. Given the outlook, though, it is plausible that the cash rate will be increased later this year,” he said.

“I recognise that there is a risk to waiting too long, especially in a world with overlapping supply shocks and a high headline inflation rate, but there is also a risk of moving too early.

“Australia has the opportunity to secure a lower rate of unemployment than has been the case for some decades. Moving too early could put this at risk.

“There are benefits to the economic welfare of Australia of a period of relatively steady growth in which people get jobs, have training and develop skills.

“This is one path to sustaining a lower unemployment rate than was thought possible just a short while ago.”

The major banks have already said they expected a rate rise later this year and after Lowe’s comments the ANZ said it expected a hike in the third quarter, rather than the second quarter.