Sydney - At its meeting Tuesday, the Reserve Bank of Australia decided to leave the cash rate unchanged at 7.25%, as expected. However, economists say the accompanying statement suggests the bank might be considering ending its five-year hiking cycle.

"Today's short statement suggests that the RBA is in wait-and-watch mode as it assesses whether the 'substantial' tightening in overall financial conditions since the middle of last year is enough to generate the significant and sustained slowdown needed to see inflation move back into the target range," said RBC analyst Su-Lin Ong.

"Our waning conviction in the last few weeks in our final rate hike pencilled in for May has been driven by the amount of market-induced tightening in conditions that has occurred amid a further deterioration in global credit conditions."

Indeed, the press release from RBA reads, "Weighing up the available domestic and international information, the Board’s judgment is that the current monetary policy setting is appropriate for the time being."

Developments abroad continue to suggest that the world economy is slowing and, in line with the bank’s previous forecasts, it appears likely that global growth will be below trend in 2008, the statement continued. However, notwithstanding some recent declines in world commodity prices, a further large rise in Australia’s terms of trade is in prospect this year, the board said.

According to the RBA, the board has been seeking to slow the growth of aggregate demand in order to reduce inflation, having already increased the cash rate by 25 bps at each of its two previous meetings, as well as on two occasions last year.

However, many are not content to call the end of the Bank's quest against inflation pressures in the region.

"The most important take from this statement is consistent with our interpretation of the Governor's speech on March 11, when he recognised that underlying inflation was likely to reach 4% in the March quarter, but noted that it was necessary to consider not only current inflation, but also expected inflation in the medium term," economists from Westpac wrote in a client note.

"The key to the outlook for expected inflation is growth in domestic demand, rather than current inflation, which has been the case throughout this long tightening cycle."

Nevertheless, "the accompanying statement provided a few clues that the bank is becoming more comfortable with the inflation outlook than they were in March," despite the RBA's acknowledgment that in the short term, inflation is likely to remain relatively high, they continued, adding that both the CPI and underlying measures will probably rise further in year-ended terms in the March quarter.

Consequently, "the upcoming CPI result remains a risk for the May board meeting," said TD Securities strategist Joshua Williamson. "But the RBA has for two months now warned that yearly inflation would be higher for the March quarter. Based on these comments the hurdle rate for inflation to provoke another rate rise should be very high."

"In all likelihood, higher inflation expectations were loaded into the two previous rate rises," he continued. "As such, RBA expectations for a 4.0% yearly inflation result should provide little to no new policy value."

The RBA's statement also focused a bit more on the risks to economic growth according to the Westpac report. "The March statement indicated 'some moderation in household demand is beginning to occur' whereas this Statement refers to 'growth in domestic demand IS moderating'."

"An additional sentence which has been used in this statement is in referring to the substantial tightening in financial conditions is 'that is working to foster the moderation in demand growth that will take pressure off inflation,'" the Westpac economists wrote.

The Australian dollar sold off about half a cent to the USD to 0.9115, while the Australian 10-year bond lost 5 ticks to 93.945.