Reserve Bank governor Glenn Stevens says that governments must act to a create more conducive environment for economic growth.
“Sustainable growth over the long run has to rely on more than just monetary policy,” he told a Credit Suisse Asian Investment Conference in Hong Kong.
“Strong long-run growth won’t be achieved in any country simply by manipulating interest rates, or, for that matter, exchange rates.
“Other conditions need to be right for growth.”
Those include creating sound environments for competition, innovation and investment, Mr Stevens said.
“In those areas various other government policies must come to the fore,” he said.
Mr Stevens said a recent commitment by the G20 to lift global economic activity by two per cent over the next five years should not be achieved through programs of cheap money or debt-financed spending.
“Many of the needed measures are likely to be politically demanding for governments to introduce,” he said.
The RBA governor also said there were “promising signs” from non-mining sectors of the Australian economy, where growth is needed to offset declining mining investment.
“There is encouraging early evidence that the so-called handover from mining-led demand growth to broader private demand growth is beginning,” he said.
Household consumption had strengthened in recent months, there are “abundant signs of confidence” in the housing market, and business confidence has improved, Mr Stevens said.
But the transition away from a resources-led economy could prove bumpy, he said.
“The fact is that no one can say with certainty just how smooth a handover will occur,” Mr Stevens said.
“Nor can anyone pretend to be able to fine-tune it.”