The Reserve Bank of Australia will take into account lags between monetary policy change and the impact on the economy before acting to ease its cash rate, Governor Michele Bullock told a parliamentary committee Friday.

“We do need to take those [lags] into account, so that's the reason we're cautious and why you see all around the world, the central banks are cautious,” she noted. “They have stopped raising rates but they're cautious. Many of them are pushing back a lot on this. They're not ready to say 'job done' and that's because of the lags in policy.”

She noted central banks want to see data and they want to be convinced they are heading sustainably back into the band. “It's no good just to go in and then pop out again. [We have] got to be convinced that we were back in the band... and we're staying there.”

The RBA held the cash rate steady this week at 4.35%, but noted in its updated forecasts that it assumes the rate will fall to 3.9% by the end of the year. (See MNI RBA WATCH: RBA Bases Forecasts On 3.9% Cash Rate By Dec)