But the relief could be short-lived, with Reserve Bank governor Philip Lowe warning that further rate hikes may yet be needed in order to bring inflation down.

"The [RBA] Board took the decision to hold interest rates steady this month to provide additional time to assess the impact of the increase in interest rates to date and the economic outlook," Dr Lowe said. "[But it] expects that some further tightening of monetary policy may well be needed to ensure that inflation returns to target."

The governor's remarks indicate that monetary policy is finely poised. Inflation remains too high, the labour market is tight and utility bills and rents are rising fast. But the economy is slowing, house prices have been falling and some households are experiencing a "painful squeeze" on their finances.

While global inflation remained "very high", Dr Lowe said the volatility on financial markets arising from recent bank failures and liquidity issues in the United States and Switzerland were likely to lead to tighter financial conditions.

Finance Minister Katy Gallagher said the RBA's decision would "come as welcome news to a lot of Australian households and businesses right around the country".

But the minister added that cost of living pressures for families remained acute and signaled that the budget due to be delivered next month would include "sensible...relief measures we can provide without adding to the inflation problem".

The Reserve Bank's decision to hold its cash rate at 3.6 per cent follows the latest update from the Australian Bureau of Statistics showing inflation rose 6.8 per cent in February, down from 8.4 per cent in December, but still well above the RBA's 2 to 3 per cent target band.

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Conditions in the labour market also remain tight, with the unemployment rate dropping back to 3.5 per cent in February.

Governor Lowe repeated concerns expressed earlier in the year about the possibility of a dangerous price-wage spiral developing and said the central bank would be closely watching labour costs and the price-setting behaviour of firms.

His warning came as the Fair Work Commission mulls an increase in the minimum wage. Unions have called for a 7 per cent rise to match inflation while employers back a 4 per cent lift. The government is backing a pay rise but has not nominated an amount.

Senator Gallagher said there was no evidence of a wage-price spiral and said in its submission the government urged workers on the lowest wage receive a pay rise big enough to ensure they "don't go backwards".

Opposition treasury spokesman Angus Taylor said the decision to pause rates was "welcome relief" for households and businesses, but said there was "a great deal of pain in the pipeline", particularly for the more-than 800,000 households switching from fixed to variable mortgage rates this year.

Mr Taylor said there was much the government could be doing to alleviate these pressures but was instead competing with households and businesses to borrow money, which was forcing rates higher.

Despite the rates pause, EY chief economist Cherelle Murphy said recent indicators suggested "inflation risks remain to the upside". Ms Murphy said March quarter inflation figures due out on April 26 will be "crucial" for the Reserve Bank.

HSBC chief economist Paul Bloxham, who tipped the rate pause, predicted the cash rate will remain at 3.6 per cent for an extended period - a view shared by Betashares chief economist David Bassanese, who has tipped a rate cut on Melbourne Cup day.

"Although the RBA still has a modest hawkish leaning, we think they will prefer to sit still if the data allow them to," Mr Bloxham said.

But Westpac chief economist Bill Evans expects the central bank will lift the cash rate to 3.85 per cent next month, which will be the high point in the tightening cycle.

Unsurprisingly, sentiment among households and businesses has sagged as rates have risen. The ANZ-Roy Morgan Consumer Confidence index improved marginally last week but has been stuck below 80 points for more than a month and is far below the long-term average of 111 points. National Australia Bank's measure of business confidence fell 10 points in February to negative 4.

The central bank appears increasingly confident that a substantial slowdown in household spending is underway, despite the significant savings some consumers still have. It also expects unemployment to increase as activity slows.

Commonwealth Bank data shows nominal debit and credit card spending is moderating, with the annual growth rate dropping a little below 10 per cent. Expenditure on services was solid, climbing 14 per cent in March while purchases of goods was much softer, increasing by just 5 per cent.

CBA economists said that, given the high level of inflation and the extent of population growth, "easing nominal spending growth is not a good sign for the volume of spending". They said the results were consistent with measures showing household consumption grew by 0.3 per cent in the December quarter.