"If everyone is easing then there is no exchange rate channel. We trade with one another, not with Mars. So if everyone is easing the effect you get from exchange rate depreciation isn't there so you don't get the stimulus you normally get from monetary easing," he said.

"It might be possible if you ease a bit more than others – you might get a bit extra growth – but that is a dangerous path to go down."

This diminishing effect of easing monetary policy on the currency was part of the growing ineffectiveness of conventional monetary policy.

"There are limits on what further monetary easing can achieve. You can still get benefit from it but there are limits," he said.

Dr Lowe's signalling of the effectiveness of monetary policy over the last week also brought the last of the big four banks – Westpac – to bring forward its expectation of another interest rate cut to July from August.

Westpac says July for rate cut

"We are surprised that we have to do this given that a pause between cuts might have allowed for a smoother transmission process," Westpac chief economist Bill Evans said.

He said one could not deny "the explicit signals" provided by Dr Lowe.


Dr Lowe said that, though the stimulatory effect of monetary policy via the exchange rate was weak, other pathways by which lower interest rates could boost the economy were also limited at the moment.

Unconventional policy still on the cards

Goldman Sachs' Mr Boak said the weakening effect of monetary policy meant more rate cuts were needed.

"Given diminishing returns to rate cuts at such low levels of rates, there is a

need for more than 25bp worth of cuts to materially shift the path we look to be on," he said.

He thinks unconventional monetary policy could begin once the cash rate falls to 0-0.25 per cent, with the RBA starting asset purchases to provide additional monetary stimulus.

He said programs to support bank lending were also likely to be implemented if declining bank profitability began to threaten interest rate pass through and/or broader financial stability.

"Importantly, while we think the RBA would not hesitate to implement such policies if deemed necessary, we expect the RBA to first exhaust conventional monetary policy well in advance of any ‘unconventional’ measures."