If, as many economists suggest, the Reserve Bank starts to move the cash rate back from its historic low of 2.5 per cent to a neutral setting later this year, the "neutral setting" may be lower than in the past.This is the view of Commonwealth Bank economist Gareth Aird, who has issued a paper arguing that the neutral cash rate, which is not a constant, will be lower than in previous cycles.Commonwealth Bank's view is that the neutral cash rate is now 3.5 per cent.The RBA's view has changed over time. In February 2012, RBA governor Glenn Stevens said that 4.25 per cent was "broadly neutral". Back in 2004 the RBA nominated a range of 5.25 per cent to 6.25 per cent as a "zone of neutrality".Aird said: "The neutral cash rate is the interest rate that would not exert expansionary or contractionary force on the economy."Changes in productivity, the terms of trade, savings behaviour, fiscal policy, credit growth, lending margins and the exchange rate all have an impact on the estimate of the neutral cash rate."These drivers have moved in a way that indicates a lower neutral cash rate."In the 20 years to 2011 the Australian economy enjoyed a sustained period of rising real income. This increase was due, in large part, to economic reforms undertaken in the 1980s and 1990s, which enhanced the productive capacity of the economy.Over the past decade productivity growth has slowed in Australia. "A fall in productivity growth lowers the return on capital, meaning that it is less desirable to invest," Aird said."If the desire to invest is lowered, while the desire to save is unchanged, then a lower interest rate is required to balance savings and investment plans."Over the past two years, with the terms of trade falling and weak productivity growth, the cash rate that neither exerts contractionary nor expansionary forces on the economy has been lowered."The other boom feeding into higher interest rates is the credit boom. But during the financial crisis there was a change in household attitudes towards debt; credit growth and consumption slowed."Soft credit growth and a higher household savings ratio mean that the interest rate required to maintain economic balance is lower," Aird said.