Reserve Bank Governor Glenn Stevens says it will take something "quite surprising" to reverse a likely downward trend in interest rates.
Mr Stevens told a parliamentary committee today the central bank has moved from a stance of whether it has done enough to curb inflation to one in which the question is "do we hold here or do we go down a bit more?".
The Reserve Bank of Australia (RBA) cut its official cash rate last week to 7.0 per cent from 7.25 per cent, its first reduction in nearly seven years.
The decision followed 12 consecutive rate increases from May 2002, including increases in February and March this year.
"Unless something quite surprising happens, it seems to me unlikely that we will be reversing course up again in the near term," Mr Stevens told a public hearing of the House of Representatives economics committee in Melbourne.
Mr Stevens noted financial markets had priced in some further reductions in the cash rate over time.
"I don't have any particular agenda today to either persuade them from that or encourage them any further.
"We will assess the situation month by month."
National Australia Bank senior economist Spiros Papadopoulos says the governor's tone, so far, suggests the RBA has adopted a cautious approach to lowering interest rates.
"We still expect a 25 basis point cut in October, but then a pause before resuming to ease further in 2009," he said.
Mr Stevens also defended the central bank's decision to raise rates in February and March given the information at hand at the time, and given that it is still expecting the consumer price index to rise further to an annual rate of inflation of 5.0 per cent.
This is well outside the RBA's two to three per cent inflation target band.
"I think the likelihood that we were going to credibly sit through one bad CPI, then another, then a third, and there is actually a fourth coming that still won't look too good, and not respond at all, I think that was pretty unlikely," Mr Stevens said.
"When inflation is rising like that you have to respond.
"The earlier you respond, the sooner you can get to a position where you can then sit and say as we did that's tight, that will do the job, it will take time, but it will work.
"I don't think we would have been in that position without those two changes at the beginning of the year.
"In fact I think we could have well found ourselves much later in the year agonising over whether we should be raising rates even then."
The hearing will finish at noon.
