The central bank today left its key official rate unchanged 7.25%, as widely expected, at its regular monthly board meeting.

Borrowers, however, had been hoping for the RBA to indicate that its main concern had now switched from bringing down inflation to averting a stalling in the overall economy.

That shift would have been a prelude to a cut in the official rates in coming months, the first such move since December 2001.

Proof that the economy has been slowing is mounting. A monthly gauge of the services sector by the Australian Industry Group out earlier today reported the worst result since the survey began in February 2003.

Retail sales in June shrank while housing prices are flat or falling in most capital cities, and business confidence is crumbling.

Even so, the RBA said official interest rates would need to remain at their current 12-year high for longer before it could declare its war on inflation won.

Annual inflation in the June quarter was at 16-year highs of about 4.5%, well above the RBA's long-term target range of 2%-3%.

The central and the government have repeatedly warned in recent months that higher commodity prices would send a wave of extra demand sweeping through the economy.

Most other sectors in the economy, though, are struggling. A monthly gauge of the services sector by Australian Industry Group out earlier today reported the worst result since the survey began in February 2003.

Retail sales in June shrank while housing prices are flat or falling in most capital cities.

BusinessDay