The Reserve Bank of Australia (RBA) today crushed Aussie hopes for a continued reprieve in cash rate rises, pushing the bar higher to 3.85%.

The 25 basis points lift was a cruel blow for many Aussies praying that the April pause in cash rate rises - coming as it did after 10 consecutive increases - would continue this month.

And the average Aussie wasn't the only one caught by surprise by this afternoon's decision.

Many industry experts - including three of the Big Four Banks - predicted the central bank would stick with the 3.6% rate of March and April.

Both sides of the story had good reason to come to the decision table from different sides, with April giving Australia three major financial changes:

1. A pause in 10 consecutive interest rate rises
2. The Australian Bureau of Statistics' (ABS) latest release of quarterly inflation figures for the January-March period and
3. The announcement that the RBA would undergo its first significant change in four decades

In the end, however, RBA based its decision on the March quarter's 7% inflation figure.

"Increase in interest rates is warranted"

While RBA governor Dr Philip Lowe could admit Australian inflation was - finally - passed its peak, he added that it would be "some time yet" before this figure was back in its "target range" of 2%-3%.

"The Board held interest rates steady last month to provide additional time to assess the state of the economy and the outlook," Dr Lowe explained this afternoon.

"While the recent (ABS) data showed a welcome decline in inflation, the central forecast remains that it takes a couple of years before inflation returns to the top of the target range.

"Goods price inflation is clearly slowing, due to a better balance of supply and demand following the resolution of the pandemic disruptions.

"But services price inflation is still very high and broadly based, and the experience overseas points to upside risks."

New rate rise shocks the system

Today's 3.85% rates announcement shocked plenty of industry experts with only one of the Big Four Banks - the Commonwealth Bank - predicting this decision correctly.

At the same time, CBA head of Australian economics, Gareth Aird, told Rate City that the bank’s economists were closely divided on the RBA announcement with 55% in favour of a hike and 45% against.

Meanwhile, a Chanticleer article in The Financial Review last week revealed that before the ABS' inflation results were revealed, 35% of money markets predicted a 0.25% rate rise - but only 9% continued with such a prediction after seeing the inflation data.

Royal Bank of Canada chief economist Su-Lin Ong and Betashare’s David Bassanese also declared Dr Lowe’s tightening cycle was over while AMP senior economist, Diana Mousina, told the ABC she believed the Reserve Bank would pause all interest rate hikes from April onwards.

However, it's clear from the RBA's continuing tough love approach that it is determined not to go too easy, too fast, and too early on interest rate pauses.

"If high inflation were to become entrenched in people’s expectations, it would be very costly to reduce later, involving even higher interest rates and a larger rise in unemployment," Dr Lowe said today.

"Medium-term inflation expectations remain well anchored, and it is important that this remains the case.

"Today’s further adjustment in interest rates will help in this regard."

Mortgage holders should sit tight: CoreLogic

CoreLogic was one of the industry experts who were more cautious about what might happen at today's RBA Board meeting, saying after the ABS' quarterly figures announcement that even the lower-than-expected figures could result in another rate rise.

"At 6.6%, core inflation is trending slightly lower than RBA forecasts, but other indicators of economic performance remain strong, leaving the RBA with an especially tough decision (this) month," head of residential research, Eliza Owen, said.

After today's announcement, executive research director, Tim Lawless, sounded more confident, noting that this latest lift would likely be the last in what has been the most rapid rate hiking cycle on record.

Mr Lawless was also clearly pleased with the results of CoreLogic's latest House Value Index report - released just yesterday - which showed each of the four largest capital cities recording a lift in values over the rolling quarter.

"Today’s rate hike reflects the RBA’s uncertainty about how ‘sticky’ inflation might be, amid persistently tight labour markets and new evidence that housing prices have moved through their low point," Mr Lawless explained.

He added that Dr Lowe's announcement comments highlighted the rapid drop in housing prices since rate hikes commenced.

"This could be a factor in slowing household spending (alongside high interest rates and high cost of living pressures)," Mr Lawless said.

"Although housing considerations aren’t part of the RBA’s mandate, a return to a more positive housing trend could be accompanied by a lift in consumer attitudes, supporting consumption and potentially keeping inflation higher for longer."

As for what the future holds, Mr Lawless said only time would tell as to whether the latest rate hike would send the recent positive trend in home values into reverse.

"However, our anticipation is the market will continue to level out on the expectation that interest rates have peaked and the imbalance between housing demand and supply will persist for some time yet," he said.

Will interest rates rise again?

In short, yes - although when further rises will occur is difficult to say.

But the "reasonable timeframe" Dr Lowe continually falls back on may require a "further tightening of monetary policy".

"The size and timing of future interest rate increases will continue to be determined by the incoming data and the Board’s assessment of the outlook for inflation and the labour market," Dr Lowe said.

At the same time - and as Dr Lowe has also continually said in every RBA cash rate announcement this year - there is plenty of uncertainty around household consumption with many people "experiencing a painful squeeze on their finances".

So, we'll see.

Next week's Federal Budget on Tuesday, May 9, may give Aussies some financial relief, at least - and such relief can't come too soon.

The RBA's next monthly cash rate announcement - and the final one for the 2023 financial year - will be on Tuesday, June 6, 2023, at 2.30pm AEDT.