In his statement, RBA Governor Philip Lowe said the higher interest rates were working to establish a more sustainable balance between demand and supply and would continue to do so.

“In light of this and the uncertainty surrounding the economic outlook, the board decided to hold interest rates steady this month. This will provide some time to assess the impact of the increase in interest rates to date and the economic outlook,” he said.

However, he said inflation was still too high.

“Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon how the economy and inflation evolve.”

Economist Warren Hogan said the decision to hold interest rates at the current level meant the RBA believed the cash rate was close to its peak while Deloitte Access Economics partner Stephen Smith said  the pause showed the RBA considered the economy was on a knife’s edge.

“The pace of inflation has peaked and is moderating, wage growth is not excessive, medium term inflation expectations are not rising and the RBA’s own research shows that at least half of the inflation in Australia in the past year has been driven by supply factors,” Smith said.

“Today’s pause is welcome and will be a relief to households. It is also consistent with the fact that central banks are impotent in the face of supply side inflation pressures.”

The decision sent the share market into a sharp rally, jumping 50 points in a matter of minutes, but it levelled off to be up 34 points for the day.

There had been concerns that a pause in interest rate hikes could light a fire under the housing market again, but SQM founder Louis Christopher said he believed housing sentiment would remain cautious.

Economist Chris Richardson said “the risk is that our gentler approach may embed inflation deeper than otherwise, meaning (as the RBA notes) even higher rates, and for longer. Hold tight for the ride”.

The consensus among many economists was that further hikes would occur in coming months, simply because the inflation rate was still too high and some elements of the economy had yet been brought to heel by the previous hikes.

The RBA made no mention of productivity, which was a major concern it raised last month in the RBA minutes, but it remains concerned about household spending.

“In making its decisions, the board will continue to pay close attention to developments in the global economy, trends in household spending, and the forecasts for inflation and the labour market,” Lowe said.

“The board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that.”