Interest rate cuts don't drive demand like they used to

THE head of the Reserve Bank has warned that interest rate cuts are not having the same impact on driving demand as they once did.

RBA Governor Glenn Stevens addressed parliament's House Economics Committee in Sydney on Friday.

He said the RBA board was aware of the "possibility" that monetary policy's power to help drive economic demand was weaker than a decade ago.

After the first interest rate cut in 18 months this month and prolonged spell of low and steady rates, Mr Stevens said the ability of rate cuts to create demand was "less effective".

But he said monetary policy had not reached a point where it could not support some demand, and the board thought it "appropriate" to provide such support in the latest rate cut.

While other nations are sitting at 0% interest rates, Mr Stevens said he couldn't be 1000% certain, but he did not think Australia would be forced into that position.



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