THE Reserve Bank of Australia (RBA) has defied market expectations and left the cash rate unchanged at 4.5 per cent for the fifth straight month.
But the reprieve for borrowers and home owners may be short lived, with the prospect of a November rate hike still "live", economists say.
In a statement accompanying the decision, RBA governor Glenn Stevens said he expected inflation, which monetary policy is designed to control, to remain within the RBA's target band of 2 to 3 per cent over the near term.
However, his statement also had a warning about future rate rises.
"If economic conditions evolve as the Board currently expects, it is likely that higher interest rates will be required, at some point, to ensure that inflation remains consistent with the medium-term target," he said.
ICAP economist Adam Carr said he would have been surprised if the RBA had lifted the rate in October because there had been too few economic indicators released during the previous month.
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"It was the right decision. We haven't had any new data since August," Mr Carr said.
"I would have been genuinely surprised, analytically, had they done it. The case hadn't been made.
"We have got a lot of data coming in over the next month and if it comes in as expected, there will be a case to hike."
Most economists and analysts - including those from the big four commercial banks - were expecting the RBA to lift the rate to 4.75 per cent.
A rate rise of 25 basis points would have added about $50 to the monthly repayments on a 25 year, $300,000 mortgage.
The local dollar fell almost one US cent to 95.76 cents in the minutes after the decision was announced.
Australian bonds rose on the news, with the three-year futures contract rising to 95.19, from 95.04 just before the announcement.
Before the decision's announcement, the futures market had priced in a two in three chance of a rate increase.
The market has now priced in a one in three chance of a November rate rise.
Banks may move on rates independently
RBC Capital Markets economist Su Lin Ong said she was unsure whether the major banks would move independently to lift rates despite the central bank leaving the cash rate on hold.
"It's pretty hard to do so, I know they've been threatening to do so but it would have been much easier for them to piggy back on a move today than to just move outright," she said.
"We'll wait for any announcements in the next couple of days.
'If they do move independently, that could well negate the need for the RBA to move at all this year."
She said today's RBA statement that higher interest rates will be required to ensure that inflation remains consistent with the medium-term target and that interest were close to their average of the past decade was nothing new.
"We know rates are going to go up over the next little while, whether it's next month or the month after really depends on the domestic data run as well as developments offshore," Ms Ong said.
She said today's statement seemed to place a bit more weight on Europe's banking system and financial markets.
"I think that's going to feature reasonably heavily in their thought process over the next couple of weeks and into the next meeting."
Ms Ong said the situation in the US had not eased enough for the RBA to consider a rate rise.
"Over there, the discussion is about further QE so not at all," she said.
"That was part of the reason we thought maybe the RBA would stay on hold."