RBA says it can cut rates if needs to The Reserve Bank is in a position to cut interest rates again if it needs to, the Reserve Bank says. Low interest rates were having their desired effect, driving asset prices higher and stimulating the economy, deputy governor Philip Lowe says. But even if the cash rate was cut again, from its current record low of 2.5 per cent, it would still have a stimulatory effect, he said. "One of the reasons why there's a limit to the continuing benefits of stimulatory monetary policy ... is you get to the point where the confidence effects don't seem to be as strong as they were in normal times," Dr Lowe told an Australian Business Economists event on Tuesday night. I don't think we're there yet, so we're in a fortunate position that if we do need to lower interest rates we can. I think if we needed to lower interest rates, I think that would be stimulatory. Rising house prices were an intended effect of the record low cash rate, Dr Lowe said, but the RBA had become concerned about risky lending to investors. We wanted the higher housing prices to make it more attractive for people to undertake new construction and by and large that's happening ... The issue is whether that process is going too far," he said. Our judgment so far is that what's happened there is broadly OK. The issue we've focused on is the increased investor loans, in particular investor loans that are interest only. Our sense is that as a whole, those portfolios have become a little more risky. We've highlighted that issue and said it's appropriate to look at whether ... some extra actions could be taken. Dr Lowe said any regulations being considered to curb investor activity would be a "more graduated approach" than in the past. He said the Australian economy had the foundations for a prosperous future, thanks to resource exports, strong population growth and strong ties with Asia. If Australia did become a highly productive, globally competitive economy, the purchasing power of the Australian dollar would be higher, he said. "The exchange rate plays a role in how the economy evolves at any point in time and the real exchange rate in Australia is still quite high," Dr Lowe said. We do have a high exchange rate and I would hope that over time, our exchange rate, if we're successful, would stay high, higher than it was in the 1990s. We should really hope for that. That's a structural sign of success.