Homeowners have been told not to expect too many more interest rate cuts as Australia continues to recover from an economic flu.

The good news for borrowers is the Reserve Bank of Australia (RBA) may cut rates one more time, but after that they are more likely to go up than down, the experts say.

Inflationary pressures, which usually govern the direction of interest rates, are showing further signs of easing.

Producer prices, or the costs of making goods and services, declined by 0.8 per cent in the June quarter.

This was the biggest quarterly fall since the data series began in 1998.

The Australian dollar rose above 80 US cents in June for the first time in eight months, helping to reduce imported production costs.

Retail sales and consumer sentiment are showing signs of improvement, thanks to the federal government stimulus programs.

Commonwealth Bank economist James McIntyre said the Reserve Bank may cut rates one more time in September, before raising them in late 2010.

“The Reserve Bank will be happy to see this sort of producer prices number,” he said.

“Most of us now think the RBA is done.”

He added that interest rates would only be cut if global financial jitters made it harder for banks to borrow overseas.

“If they do cut any further, they’re very reluctant cutters from here.”

Like some economists, Australians are also starting to believe the worst of the global financial crisis is over, with an Essential Media poll finding 52 per cent of respondents are feeling optimistic.

A precursor to future interest rate moves may be found in the release of minutes from the Reserve Bank’s July 7 meeting, on Tuesday morning.

AMP Capital Investors chief economist Shane Oliver said the minutes were likely to point to stable interest rates.

“For now interest rates are on hold given the improving economic outlook and the sharp easing in monetary and fiscal policy,” Dr Oliver said in a research note.

Interest rates were kept at a 49-year low of three per cent this month, with Reserve Bank governor Glenn Stevens indicating easing inflation allowed some scope for more rate cuts “if needed”.

But the Reserve Bank also noted that global economic conditions were stabilising as growth in Australia’s second biggest trading partner, China, strengthened.

Consumer inflation data is due out on Wednesday, with economists expecting the consumer price index to show further signs of easing.

AAP