RBA keeps rates on hold

The cash rate will stay at 4.5 per cent.

Many economists had expected the RBA to sit tight as it monitored the effects of six rate hikes since October, as well as major turbulence in international financial markets.

"Since the Board last met, concerns about sovereign creditworthiness in several European countries have been a focus of financial market', RBA Governor Glenn Stevens said in a statement.

The decision brings welcome news for homeowners - recent rate rises have added $300 to monthly repayments on the mortgage of a $300,000 loan over 25 years.

Fresh data indicated that demand for credit has been dampened, retail sales are sluggish, and the edge has been taken off rising house prices. Data shows that building approvals posted a big plunge in April.

Stevens said that inflation appears likely ' to be in the upper half of the target zone over the next year.'

"With the high level of the terms of trade expected to add to incomes and demand, output growth over the year ahead is likely to be about trend, even though the effects of earlier expansionary policy measures will be diminishing", he said.

"Consistent with that outlook, and as a result of actions at previous meetings, interest rates to borrowers are around their average levels of the past decade, which is a significant adjustment from the very expansionary settings reached a year ago. Taking all the available information into account, the Board views this setting of monetary policy as appropriate for the near term"

But with inflation rising, some experts say that could mean more rate rises later this year.