The Reserve Bank has left the official cash rate on hold, but has expressed concern over rising inflation.

In its decision to leave interest rates untouched, the RBA board indicated that consumer caution is having a dampening effect on the economy. The Bank pointed out declining credit growth, and said demand for credit has dwindled, even as lenders loosen credit criteria. RP Data national research director Tim Lawless said this is unlikely to change, even with the RBA's rate decision.

"The stability in interest rates over the past nine months would have been welcomed by many mortgage holders, however speculation about future rate lifts is likely to continue to dampen market conditions anyway," he said.

Broker David Brell of Smartmove said he has witnessed the effects of this wariness in the Sydney market, where he said conditions were worsening. He commented that he is concerned any further rate moves would only dampen activity in the lower end of the market.

"It will hurt the lower to medium end of the market, however it will not impact the higher end. Consumer confidence will drop and the first culprit is likely to be the retail sector and the property market will obviously follow," Brell said.

Brell said brokers may want to advise some clients facing serviceability issues to consider fixing part of their loan.

"It's a personal decision on their particular comfort levels. If the clients feel they are stretching themselves, fixing a portion may give comfort and also remove upside risk for the short term," he commented.

In spite of leaving rates at 4.75%, the Reserve Bank still expressed concern over high inflation figures. The RBA indicated recent CPI numbers still show the effects of extreme weather events earlier in the year, but that other inflationary measures have begun to rise.

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