Dr Lowe told a dinner packed with bank economists that unlike in other countries where poor credit demand had rendered monetary stimulus largely unproductive, Australian investors had responded to the RBA's easing.
The cash rate, which has been on hold at 2.5 per cent since August last year, is expected to remain there at least until the middle of next year, according to consensus forecasts.
Some outlying forecasters, however, have not ruled out a further cut next year to address stubborn patchiness in the Australian economy.
According to global fund manager AllianceBernstein, the "collapse" of commodity prices and a cooling property market in Australia could force the RBA's hand next year.
Dr Lowe told the annual dinner of the Australian Business Economists that such a cut, if needed, would work.
"[In Australia], we are seeing lower interest rates lead to higher asset prices and that's inducing more real activity in the economy," he said.
"The problem that other countries have had is that mechanism is not working, or at least not working very effectively.
"My judgement would be that if further interest rate reductions were required, they would have some effect in stimulating economic activity."
Dr Lowe's comments – and a preceding speech – appeared to drive the Australian dollar lower in international trading. Early on Wednesday, it was fetching US85.23c, close to four and a half year lows, after a dip when Dr Lowe's speech was published.
He said one of the limits to the usefulness of monetary easing was consumer and investor confidence. As this wanes, the returns from interest rate cuts diminish, he said.
"One of the reasons why there's a limit to the continuing benefits of stimulatory monetary policy is you get to the point where the confidence effects don't seem to be as strong as they were in normal times," Dr Lowe said.
"I don't think we're there yet, so we're in a fortunate position that if we do need to lower interest rates, we can."
Rising house prices and investment in Australia were the fruits of the RBA's current easing cycle, he said. He dismissed talk of a property bubble, but said the central bank had singled out the build-up of risk in loans to buy-to-let investors.
"We wanted the higher housing prices to make it more attractive for people to undertake new construction, and by and large that's happening," he said.
"The issue is whether that process is going too far," he said.
"Our judgment so far is that what's happened there is broadly okay.
"The issue we've focused on is the increased investor loans, in particular investor loans that are interest only. Our sense is that as a whole, those portfolios have become a little more risky."