The Reserve Bank is in a position to cut interest rates again if it needs to, the Reserve Bank says.
Low interest rates were having their desired effect, driving asset prices higher and stimulating the economy, deputy governor Philip Lowe says.
But even if the cash rate was cut again, from its current record low of 2.5 per cent, it would still have a stimulatory effect, he said.
“One of the reasons why there’s a limit to the continuing benefits of stimulatory monetary policy … is you get to the point where the confidence effects don’t seem to be as strong as they were in normal times,” Dr Lowe told an Australian Business Economists event on Tuesday night.
“I think if we needed to lower interest rates, I think that would be stimulatory.”
Rising house prices were an intended effect of the record low cash rate, Dr Lowe said, but the RBA had become concerned about risky lending to investors.
“We wanted the higher housing prices to make it more attractive for people to undertake new construction and by and large that’s happening … The issue is whether that process is going too far,” he said.
“Our judgment so far is that what’s happened there is broadly OK.