BRISBANE, April 3 (Reuters) - Australia’s top central banker cautioned on Thursday that it was far too early to know if Australia will manage a slowdown in mining investment without suffering a slump, suggesting interest rates would need to stay at rock bottom for some time yet.
Reserve Bank of Australia (RBA) Governor Glenn Stevens said there were promising early signs that things might not turn out “too badly”.
“But early signs are just that: early. It is far too soon to think about counting any chickens yet,” Stevens told an American Chamber of Commerce business luncheon in Brisbane.
“Let’s also be clear that the capacity to fine-tune these outcomes is very limited,” he said.
Earlier this week, the RBA left rates at an historic low of 2.5 percent at its April policy meeting and said the outlook was for a further period of stability. Rates have already been on hold since the last cut in August, 2013.
The central bank has cited a pick up in consumer spending, higher household wealth, rising house prices and a revival in home building as reasons for optimism about growth.
Stevens noted that even if the handover from mining investment was successful, Australia faced tough challenges over the medium term.
These included finding a path to fiscal sustainability and dealing with an ageing population.
“The answer - the only answer - is growth,” said Stevens. “To some extent we will, hopefully, be able to lessen the problem through higher labour participation, for longer. But most of all we will need higher productivity of those working.”
This was the same challenge faced by the Group of 20 nations when they adopted a goal of raising economic output at a meeting in Sydney earlier this year.
“This goal is not to be achieved by clever programs of cheap money devised by central banks,” said Stevens. “Nor is it to be the result of fiscal adventurism.”
Rather governments would have to enact politically difficult reforms, from lowering trade barriers, to encouraging labour mobility and putting retirement schemes on a sound footing.
Reporting by Wayne Cole; Editing by Paul Tait & Shri Navaratnam