The Reserve Bank has left the cash rate unchanged for a second month in a row, faced with the dilemma of rising inflation at home but an uncertain global economic outlook.
Economists say this conflict of factors may see interest rates on hold for a protracted period.
As widely predicted, and to the relief of homeowners and other borrowers, the Reserve Bank kept the cash rate at 4.5 per cent following Tuesday's monthly board meeting.
In a brief statement, central bank governor Glenn Stevens said borrowing rates were around their average level of the past decade.
"Pending further information about international and local conditions for demand and prices, the board views this setting of monetary policy as appropriate," Mr Stevens said.
Both sides of politics welcomed the decision, saying it will be a relief for anyone with a loan.
"While we've fought off recession and kept unemployment low, we know a lot of people are still doing it tough and recent rate rises have stretched family budgets," Treasurer Wayne Swan said in a brief statement.
But opposition treasury spokesman Joe Hockey again warned the government to pull back on its "reckless and wasteful spending" so that the Reserve Bank isn't forced to do the "heavy lifting" in the future.
Economists described Mr Stevens' statement as balanced, while still leaving open the door for a rate rise in August and after official inflation data is released on July 28.
Mr Stevens said spending was increasing at a modest pace, while the jobs market was growing gradually, but economic growth will be about trend, buoyed by "the high level of the terms of trade expected to add to incomes and demand".
Australia posted its third largest surplus on record in May data released on Tuesday, a result Trade Minister Stephen Smith said highlighted the resilience of the economy in an uncertain global outlook.
The trade balance of good and service was a seasonally adjusted $1.645 billion surplus in May, over three times larger than expected by economists and boosted by a 66 per cent surge in gold exports.
This came after the April surplus was upgraded sharply to $1.123 billion from an originally reported $134 million, better reflecting the huge rise in coal and iron ore contract prices from April 1.
However, the central bank chief warned that underlying inflation appears likely to be in the upper half of the central bank's two to three per cent target zone over the next year.
The consumer price index is also likely to be a little above three per cent in the near term, due to a rise in tobacco taxes and "significant increases" in prices for utilities.
Still, Mr Stevens also noted the uneven global economic recovery and recent volatility in financial markets due to concerns over European sovereign debt.
"In Europe, while output in some key countries has been improving recently, prospects for next year are more uncertain given the budgetary constraints governments face and the pressure on euro area banks," he said.
RBC Capital Markets senior economist Su Lin Ong said a high CPI, and more importantly annual underlying inflation above three per cent, on July 28, may be enough for the Reserve Bank to raise interest rates in August.
But this "would also demand some stability in global markets and data", she said.
"The hurdle to hike has clearly risen given the global uncertainty and the risk remains that this current pause may turn into one that is more protracted," she said.
