SYDNEY Australian inflation over the past year-and-a-half was the worst in three decades but the country is still unlikely to experience a recession, the head of the country's third-largest retail bank said on Thursday.

"Inflation, while slowing, has hurt Australians more during the past 18 months than it has for three decades," National Australia Bank (NAB) CEO Ross McEwan said in a speech at the Australia-Israel Chamber of Commerce.

"There is a lot of discussion as to whether Australia will head into a recession as we do have many headwinds. My view is we won't," McEwan added.

Australian inflation peaked near 8% earlier this year but after 400 basis points of rate hikes since May 2022 - from 0.1% to 4.1% - inflation has slowed to 6%. While still double the Reserve Bank of Australia's target of 2% to 3%, the slowdown has been enough to prompt a pause in tightening.

NAB and the three other large lenders which dominate Australia's A$2 trillion ($1.3 trillion) mortgage market have recorded only modest increases in late repayments as unemployment remains near record lows.

McEwan said there were "plenty of reasons to be confident that things will turn more positive towards the latter half of next year".

Immigration to Australia has returned to levels similar to before COVID-19 prompted global border closures, leading to a shortage of housing and underpinning prices.

"Through a sharp rate rise cycle, the housing market has also held up better than most expected," McEwan said.

"Perhaps this is of little surprise given the lack of housing supply. We are not building enough homes for our growing population and over time that can only push up house prices further."

($1 = 1.5418 Australian dollars)

(Reporting by Byron Kaye; Editing by Himani Sarkar and Lincoln Feast.)