Governor Philip Lowe said the board decided to keep rates on hold to give the aggressive interest rate hiking cycle to date time to work through the economy, noting interest rate movements tend to hit with a lag.

“Indeed, the board expects that some further tightening of monetary policy may well be needed to return inflation to target within a reasonable timeframe,” he clarified at a speech at the National Press Club in Sydney on Wednesday.

The decision to keep interest rates on hold at 3.6 per cent in April followed 350 basis points of tightening since May last year.

In his speech, Lowe said a few lingering supply-side inflation drivers were complicating the board’s job to return inflation to target.

He said some supply-driven shocks, such as high shipping costs, had normalised as the pandemic recovery wore on but housing and energy remained two lingering sources of supply-side inflation.

Lowe said the reopening of International borders was driving a sharp uptick in Australia’s population and that housing supply would take a long time to catch up to the shifting demographics.

Although the shortage of housing may trigger more people to form share houses and other shared living arrangements, he said supply and demand would likely remain unbalanced and keep rent inflation “quite high for a while”.

He also said global supply-side factors were largely responsible for high energy prices but if the transition to clean energy isn’t done smoothly, prices may stay higher for longer.

Sluggish productivity growth was also flagged as a “general supply issue”.

He said if these supply side issues stick around, the task of returning inflation to the target range would be challenged and a “more decisive” monetary policy response might be needed.

“The situation is more complicated when the supply-side issues are persistent, leading to persistently higher price increases in parts of the economy,” he said.

“Here there is a greater risk that inflation expectations and price- and wage-setting behaviour adjusts.”

The 10 consecutive hikes so far have jacked up borrowings costs for businesses and mortgage holders, with thousands of households with fixed-rate home loans due to feel the full weight of the rate increases when these offers expire this year.

Finance Minister Katy Gallagher said while the pause would bring some reprieve, the federal government understood people were still under pressure financially.

“There are a number of mortgage holders – about one in five – that will face coming off those fixed terms and into variable rates throughout the course of this year,” she told ABC Radio National.

“We know that’s going to be pretty challenging for those households.”