The central bank today left its key official rate unchanged 7.25pc, 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.

Reserve Bank Governor Glenn Stevens said that "it is looking more likely that demand will remain subdued, and economic growth will be fairly slow, over the period ahead".

Even so, the statement added that "the Bank's forecast remains that inflation will fall below 3pc during 2010".

The statement's final paragraph is the closest Stevens comes to a shift in its view:

"Nonetheless, with demand slowing, the Board's view is that scope to move towards a less restrictive stance of monetary policy in the period ahead is increasing."

Financial markets are taking the view that the less restrictive stance is not far off.

The Australian dollar shed about one-third of a US cent after the statement, dropping to as low as US92.45 cents.

Interest rate futures, though, barely budged.

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 4.5pc, well above the RBA's long-term target range of 2-3pc.

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.