On Tuesday, RBA governor Philip Lowe announced the central bank would retain the overnight cash rate at 0.1 per cent, but ditched its 10 basis point yield targeting of the April 2024 Australian government bond due to earlier than expected improvements in the economy.

Economists were anticipating the RBA would remove the measure following better than expected headline inflation of 3 per cent which was revealed last week.

The RBA expects inflation to remain above 2 per cent for 2022 and 2023. The pull back of yield curve control policy coincides with fiscal commentators at Deloitte tipping the Delta outbreak will cause the budget deficit to blow out by $9 billion more than Treasury forecast.

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Dr Lowe's statement kept open the possibility of a rate hike earlier than its initial forecast of 2024, but noted inflation would need to sit sustainably in its 2 to 3 per cent target range.

"This will require the labour market to be tight enough to generate wages growth that is materially higher than it is currently," he said.

"This is likely to take some time."

Dr Lowe flagged market interest rates had moved in response to higher inflation and lower unemployment, reducing the effectiveness of yield targeting to relieve pressure on interest rates.

KPMG economist Brendan Rynne warned the cessation of the policy brought in during the pandemic would escalate the borrowing costs.

"While the cash rate remained unchanged at 0.1 per cent, and is still expected to be maintained at this level for the next six months - possibly the next 12 months - it will not stop the cost of borrowing from rising from now on, as retail banks lift lending rates in response to higher wholesale market lending costs," Dr Rynne said.

ANZ Economics expects a tightening of monetary policy sometime in the second half of 2023, while BIS Oxford Economics believes there will be a rate lift off by early 2023.

On a fiscal front, Deloitte Access Economics in its latest budget monitor warned the underlying cash deficit would be $9 billion worse than Treasury forecast, flagging greater sovereign risks and a lack of spending on social services will add further cost pressures.

However, the consulting firm believes the federal budget is in better shape than first predicted, estimating deficits will be $45 billion lower than Treasury's 2024-25 estimates.

"Delta-driven policy costs are a very small fraction of the dollars we racked up the first time around," Deloitte said.

"Partly that's because the feds pushed more of the costs on to the states this time around." Westpac chief economist Bill Evans said the RBA's revised forecasts were "too cautious".

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