The Reserve Bank of Australia (RBA) has indicated that any more cuts to the cash rate may not be forthcoming for the time being.
RBA governor Glenn Stevens said that monetary policy settings were correct for the current economic circumstances.
He made the comments after an upbeat speech on the Australian economy to the Anika foundation in Sydney, entitled, The Lucky Country.
He was asked if he was concerned about the current combination of a low inflation rate and low bond yields, which according to Nobel Prize-winning economist Milton Friedman was a sign that the official interest rate is too high.
“Our recent communication is that we think the settings are about right for circumstances that we are in,” Mr Stevens said.
“What Professor Friedman would think of the conduct and policies of other countries, I’m not sure.”
The RBA cut the cash rate by half a percentage point in May and a quarter of a percentage point in June, citing instability in Europe and a mixed outlook for domestic growth.
The central bank also cut the rate by a quarter of a percentage point at both its November and December board meetings last year.
The RBA kept the cash rate steady at 3.5 per cent after its July board meeting earlier this month.
Mr Stevens earlier said he was happy with the balance of Australia’s economic settings.
“From where I’m sitting, we have an unemployment rate in the low fives, inflation rate, well, we’ll see what we have tomorrow but it’ll probably be near two per cent, banks are strong, government finances are in reasonable shape, the currency is sound,” he said.
“It’s not too shabby.”
The Australian Bureau of Statistics will release the June quarter consumer price index, the key indicator of inflation, on Wednesday.
However, CommSec chief economist Craig James said a cash rate cut in the next few months could still be possible.
“While that doesn’t preclude a rate cut in August, the factors would need to present, such as further instability in Europe and a low domestic inflation result,” Mr James said.
“CommSec is still pencilling in a rate cut over the next few months.”
