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RBA rate cut can't be ruled out

Comments from Australia's top central banker, Glenn Stevens, are a reminder that another interest rate cut should not be ruled out.

The Reserve Bank of Australia's board will hold its monthly monetary policy meeting on Tuesday.

That's Melbourne Cup day, one of the RBA's favourite days for moving rates.

This time around, the cash rate is likely to stay at its record low 2.5 per cent.

A cut to 2.25 per cent on Tuesday is only about a one in 14 chance, the futures market says.

But it's still a real possibility further down the track, even though the market says it's not even a 50-50 proposition.

At least that's the implication of the speech by the RBA's governor to an investment conference in Sydney on Tuesday.

The Australian dollar's recent moves had been "around levels that were already unusually high", he said.

And he reiterated his view that the Aussie's value was out of line with "Australia's relative levels of costs and productivity".

In other words, it's too high for Australian industry to be competitive.

As well, export prices would probably fall relative to import prices.

"So, it seems quite likely that at some point in the future the Australian dollar will be materially lower than it is today," he said.

The comments were in the context of discussion of the economy's return to "balanced growth" after the mining investment boom.

Mr Stevens described a lift in business confidence which has, so far, only led to early signs of a pickup in housing construction.

"But at this stage, the available information suggests that broader investment intentions in the business community remain subdued," he said.

So, this domestically-oriented source of rebalancing is yet to arrive.

"Another part of the balanced growth path would involve an expansion in some of the trade-exposed sectors that have been squeezed by the high exchange rate," Mr Stevens said.

And, while he didn't say it explicitly, it's clear the RBA sees the high exchange rate as an ongoing bar to recovery in those sectors.

Realistically, the RBA can't have closed off the option of cutting interest rates further, either to pull the Aussie dollar down or to cushion the negative effects of its stubborn strength.

Mr Stevens has made that plain enough, but not in Sydney this week.

It was in a speech to the Australian British Chamber of Commerce on October 18.

"I personally would continue to think that a lower currency would be helpful in rebalancing the growth of the economy," he said in answer to a question after that talk.

"If it warrants a response we will do it."

And the longer things stay as they are - below-normal economic growth and flatlining employment levels - the more warranted a response will become.

A world where the RBA does not feel compelled to cut interest rates is preferable to the alternative.

But we don't always get what we'd prefer.