Australia's Reserve Bank held its key interest rate at 7.25 percent Tuesday, a widely expected decision that reflects signs of a slowdown in the local economy despite rising inflation.
RBA governor Glenn Stevens said the current monetary policy "remains appropriate for the time being."
The RBA's key rate is at a 12-year high after the bank increased rates twice this year because of inflation concerns. The RBA last raised rates in March; it has increased the target 12 times since mid-2002.
"Considerable uncertainty remains about the outlook for demand and inflation," Stevens said in a statement. "On balance, the Board's current assessment is that demand growth will remain moderate this year."
The Australian dollar fell 0.3 U.S. cents to 94.4 against the U.S. unit following the announcement.
Economists expect inflation pressures to keep the RBA on alert, but as growth and demand pressures ease, they expect the central bank may consider cutting interest rates in 2009.
"In the short term, inflation is likely to remain relatively high, but it should decline over time provided demand evolves as expected," Stevens said.
Treasurer Wayne Swan welcomed the central bank's decision on behalf of home owners, families and businesses.
"It reinforces the need to find savings in the budget, to build a strong surplus and put downward pressure on prices and inflation and ultimately to put downward pressure on interest rates," Swan told reporters in Canberra, the capital.
"Inflation is a substantial problem in this country and this government is determined to fight inflation, to bring down a responsible budget," he said. Next week Swan will unveil the government's first annual budget since it was elected last November.
Monetary conditions in Australia have tightened considerably since the middle of 2007, with the RBA hiking rates four times since August. Also, private banks have responded to the credit squeeze by raising lending rates independently of the central bank's tightening measures.
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