The Reserve Bank has elected to leave official interest rates on hold at 3.25 per cent, defying economists' bets on a Cup Day cut.
A survey of 27 economists by financial news service Bloomberg had 20 tipping a rate cut.
However, the RBA has elected to break a six-year streak of moving interest rates on the first Tuesday in November, by leaving its official overnight cash rate target at 3.25 per cent.
It is the first time that Glenn Stevens as RBA governor has not overseen a Melbourne Cup Day rate movement.
The decision keeps the cash rate just above the low of 3 per cent that it dropped to in 2009, during the peak of the economic fallout from the global financial crisis.
In his statement explaining the decision, Mr Stevens was more positive about the outlook for the US and Chinese economies, although he remained concerned about Europe.
He noted that global financial markets had been more optimistic over recent months, and this had also fed through to a mild recovery in commodity prices after steep falls earlier in the year.
"Key commodity prices for Australia remain significantly lower than earlier in the year, though trends have been more mixed over the past couple of months, with some prices recovering some ground while others declined further," he said.
"The terms of trade have declined by about 13Â per cent since the peak last year, but are likely to remain historically high." Looking at the domestic economy, Mr Stevens also noted that the effects of earlier rate cuts were starting to feed through to business borrowing, home values and share prices.
"Interest rates for borrowers have declined to be clearly below their medium-term averages and savers are facing increased incentives to look for assets with higher returns," he noted.
"Further effects of actions already taken to ease monetary policy can be expected over time." Inflation concerns The RBA governor noted the recent uptick in unemployment, but also observed that a weaker labour market may be helping to keep rising inflation in check.
"With the labour market having generally softened somewhat in recent months, and unemployment edging higher, conditions should work to contain pressure on labour costs in sectors other than those directly affected by the current strength in resources," Mr Stevens said.
"This and some continuing improvement in productivity performance will be needed to keep inflation low, since the effects on prices of the earlier exchange rate appreciation are now waning." HSBC Australia chief economist Paul Bloxham says concerns about inflation creeping higher seem to be the key reason the Reserve decided to leave rates on hold.
"Given the waning effect of the exchange rate on pushing down tradables prices and that inflation appears to have passed its trough, we could be nearing the end of this rate cutting cycle," he wrote in a note on the data.
"For now, we have in mind one more cut, but only just." However, UBS Australia's economics team, Scott Haslem and George Tharenou, warn that the Reserve Bank risks getting behind the curve and damaging confidence and economic growth with rates that are too high.
"We see today's RBA decision to hold rates as a missed opportunity to ensure Australia can rebalance back toward the non-mining domestic economy, as the commodity price/capex [capital expenditure] stimulus fades through 2013," they wrote.
"While it's true global growth appears on a firmer footing of late, and there are ongoing signs of a modest pick-up in the domestic economy, it's by no means clear that with weak corporate profits, slowing economy-wide income growth and a deteriorating jobs outlook, that the non-mining economy will be able to create the jobs needed next year to avoid a significant rise in unemployment." Westpac chief economist Bill Evans believes a December rate cut's in order.
He says despite all the optimism, the mining boom is still ending sooner than hoped and the RBA has to ensure other sectors are able fill the void.
"We need to start focusing on giving a true lift to the other parts of the economy and delaying on interest rate cuts isn't the way to do that," he said.
The Australian dollar jumped after the decision as currency traders cut their bets on further rate reductions - it rose from just under 103.7 US cents to around 104.3 at 3:30pm (AEDT).