In a speech on Thursday, Reserve Bank (RBA) Governor Philip Lowe said the bank had assessed economic outcomes and found a rate cut may now be more suitable than earlier in the year.
"When the pandemic was at its worst and there were severe restrictions on activity we judged that there was little to be gained from further monetary easing," Dr Lowe said.
"The solutions to the problems the country faced lay elsewhere.
"As the economy opens up, though, it is reasonable to expect that further monetary easing would get more traction than was the case earlier."
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Dr Lowe said the central bank also needed to assess how further monetary easing would affect financial stability in the long-term.
"To the extent that an easing of monetary policy helps people get jobs it will help private sector balance sheets and lessen the number of problem loans," he said.
"In so doing, it can reduce financial stability risks.
"We also need to take into account the effect of low interest rates on people who rely on interest income."
Any definitive answer on a November cash rate cut was not given by Dr Lowe, who remained relatively cagy on the topic in his speech, and said The Board had not yet made a decision.
Economists are widely tipping the RBA will take the cash rate to a new record low at its November meeting, cutting by 15 basis points and taking the rate to 0.10%.
No cash rate hike till 2023
Dr Lowe said the conditions needed for a cash rate increase were a significant way away.
"On our current outlook for the economy – which we will update in early November – this is still some years away," Dr Lowe said.
"So we do not expect to be increasing the cash rate for at least three years."
The RBA has long affirmed it would not increase the rate until progress towards full employment was made and inflation sat in its desired band of 2-3%.
However, Dr Lowe said it was no longer good enough for the central bank to be 'confident' inflation would sit in that band.
"The Board will not be increasing the cash rate until actual inflation is sustainably within the target range.
"It is not enough for inflation to be forecast to be in the target range."
"While inflation can move up and down for a range of temporary reasons, achieving inflation consistent with the target is likely to require a return to a tight labour market."
Dr Lowe said The Board wanted to see more than just progress towards full unemployment and considered the current high rate of unemployment as an important national priority.
"Consistent with our mandate, we want to do what we can do, with the tools we have, to ensure that people have jobs," he said.
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