"Public interest" will determine Australia monetary policy: central bank chief

Flexibility in Australia's inflation target in response to other pressures will be key to the Australian monetary policy setting with decisions to only be in the "public interest", the central bank chief said in his maiden speech on Tuesday.

Australia's central bank has eased monetary policy twice in 2016 to the record low 1.5 percent, however the easing in policy was not in response to concerns about Australia's economic growth, Reserve Bank of Australia (RBA) governor Philip Lowe said at an investment conference in Sydney.

"These reductions followed inflation outcomes early in the year that were lower than expected, as well as an assessment that inflation was likely to remain quite low for some time."

Though lowe emphasised low inflation expectations more than his predecessor Glenn Stevens ever did, it was predicated on "flexible inflation target", whereby the importance of employment and financial stability determined the degree of flexibility warranted at any particular time.

But Lowe said they risk feeding low inflationary expectations into a negative feedback loop that would further lower inflation expectations and risk halting Australia's quarter century of uninterrupted growth.

"Our sense is that the RBA do not want to cut rates but will if next week's (third quarter) CPI is low enough," Commonwealth Bank of Australia economist Kristina Clifton said in a note.

"In our view, an underlying CPI of 0.3 percent or lower will trigger a rate cut at the November meeting," she said.

Below target inflation is not unique to Australia however with global markets combatting a wave of deflation from excess capacity and increased competition, posing challenges for policy frameworks.

Lowe said Australia's robust medium-term targeting regime has served the economy well, which will continue to contribute to stability and confidence in the Australian economy.

"Continuing to be guided by this framework... has proved its worth over two decades now," Lowe said, adding the RBA will continue to use its flexibility to respond "sensibly to the situation we face." Enditem