Stray comment boosts hope of rate cut

Australia was lucky the global financial crisis hit when it did, RBA governor Glenn Stevens says. Source: AAP

AN unscripted remark from Australia's top central banker has boosted expectations for an interest rate cut in August.

Mr Stevens said the board of the Reserve Bank of Australia "deliberated for a very long time" before deciding to leave the cash rate unchanged at its monthly meeting on Tuesday.

The comment was not included in a written copy of Mr Stevens' speech sent to economists and media, and had an immediate impact on the Australian dollar.

The currency fell below 91 US cents for the first time in nearly three years as investors took it as a stronger sign that the cash rate would be cut at the RBA's August meeting.

Mr Stevens' comment offered a rare glimpse into the RBA board's deliberations.

"As you may know, the Reserve Bank board in fact held its meeting here in Brisbane yesterday, at which we deliberated for a very long time and then we acted to stick with the cash rate unchanged," Mr Stevens told an event organised by the Economics Society of Australia.

JP Morgan senior economist Ben Jarman said Mr Stevens' comment, and the fact it deviated from his prepared script, was puzzling.

"Markets have interpreted the comment as stating that yesterday's decision was a very close call, meaning that August is a decent chance for a rate cut," he said.

"We think a more likely explanation is not that the board collectively were uncertain, but that Stevens was firmly calling for an on-hold decision, while other board members were calling the opposite."

The futures market now sees the chances of a cut to the cash rate in August at about 60 per cent, up from 47 per cent on Tuesday.

In its statement issued after Tuesday's board meeting, the RBA signalled that it had room to cut the cash rate further if it sees the need.

Mr Stevens also said in his speech on Wednesday that the Australian dollar had further to fall after its recent correction.

Commonwealth Bank of Australia chief economist Michael Blythe said such comments may be part of an RBA strategy to talk down the local currency.

That would benefit sectors of the economy needed to step up to the replace the recent mining investment boom.

"The form of words increasingly used by the RBA in its communications involves raising the possibility of a lower exchange rate and noting that any fall would help the rebalancing of growth in the economy," Mr Blythe said.

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