Reserve Bank of Australia chief says another rate cut possible

The new Reserve Bank of Australia governor Philip Lowe has not ruled out having to cut the official cash rate again, despite being at a record low.

Lowe told a parliamentary hearing that financial markets are factoring in a 50 percent probability of a further interest cut from 1.5 percent to 1.25 percent, local media reports.

"That's possible, it going to depend on a whole range of factors," Lowe told the House of Representatives economics committee on Thursday.

These include what happens overseas, the next Australian inflation data, and how the labour market and housing markets are performing.

"Certainly there are scenarios where rates would fall again, there are scenarios where they wouldn't need to fall again," he said.

The Reserve Bank of Australia has already cut the cash rate twice this year.

He believes it is unlikely Australia will run out of "monetary room" and force it to undertake "incredibly unusual things" like other countries where they have zero interest rates.

"The reason why ... monetary policy is not working globally, no one wants to use low interest rates to increase their spending," Lowe said.

He is urging "some entity" or government to use low interest rates to invest, using their balance sheets to facilitate infrastructure spending.

Earlier this week Lowe, after taking over from retiring governor Glenn Stevens last weekend, set a new agreement with Australian Treasurer Scott Morrison for the operations of the central bank which will include keeping the long-standing inflation target of two to three percent.

He told the hearing this targeting regime has served Australia well, as low and stable inflation remains an important precondition for strong and sustainable growth in employment and incomes.

But he said the Reserve Bank takes a flexible approach to inflation targeting and it is not its job to always keep inflation tightly within a narrow range.

"We have not been what some have called 'inflation nutters," he said.

"We have had a more balanced perspective, recognising that some degree of variability in inflation from year to year is both inevitable and appropriate."

He said recent figures showing an annual growth at 3.3 percent was a little above estimates, while the 0.5 percentage point drop in the unemployment rate in the past year was also a better outcome than expected a year ago.

"We expect the economy to continue to be supported by low interest rates and the depreciation of the exchange rate since early 2013," Lowe said. Endit