SYDNEY: Australia's central bank is keeping an "open mind" on rate cuts but individuals and firms must play their part to stimulate the economy as the mining boom unwinds, its governor said Wednesday.
Glenn Stevens said 2013 had been "not quite (as) good as hoped for, but not as bad as feared" in the global economy, but Australia had encountered some turbulence as an Asia-led decade of mining investment passed its peak.
"Looking ahead, resource sector investment will decline -- gradually at first but more quickly thereafter. It will most likely fall considerably over the next few years," Stevens told a parliamentary economics hearing.
"It is likely that capital spending by firms in some sectors outside the resources sector will eventually pick up, but this will take some time yet and it will be against the backdrop of a challenging environment."
Stevens said the Reserve Bank of Australia expected growth -- currently running at 2.3 percent -- to remain below par for "a bit longer yet", and there could be scope for further rate cuts, particularly given that the Australian dollar remained "uncomfortably high".
Rates are at a record low 2.50 percent following a series of cuts aimed at stimulating the non-mining areas of the economy as demand from key export partner China slows and extra mining supply comes online, driving down commodity prices.
"The board has maintained an open mind about whether we may need to lower interest rates further," he told lawmakers.
Earlier cuts totalling 2.25 percentage points over the past two years appeared to have shifted behaviour from saving to spending on property and equities, boosting economic activity, he added.
But Stevens said the bank could not do all the work as Australia forges a path away from its reliance on mining.
"In the end, firms and individuals have to have the confidence to take advantage of that (low-rates) situation," he said.
"Monetary policy can't force spending to occur."
He said the government needed to show "straight-talking leadership" on productivity, including "incentives (and) flexibilities" for the nation's industries and workers.
Stevens questioned whether sectors such as agriculture or services were poised to harness the potential of China's diversifying and urbanising economy.
"It is hard to escape the feeling that we as a society have (made) the assumption, perhaps without realising it, that solid growth of the economy will simply continue," said Stevens.
"We are at a moment now when that assumption has to be questioned."
Though it has retreated significantly from a record July 2011 high of 110.81 US cents and a prolonged period at or above greenback parity, the Australian dollar -- currently trading at 89.14 US cents -- is too high for the RBA's liking.
"An exchange rate over a dollar or in the 90s is unlikely to be a sustainable equilibrium over time," Stevens said.
Treasurer Joe Hockey unveiled a Aus$47 billion deficit for 2013-14 on Tuesday, a Aus$17 billion blowout since the conservatives' September election win, and warned Australia could remain in the red for a decade.
He also downgraded growth forecasts for next year from 3.0 percent to 2.5 percent, citing a sharper-than-forecast plunge in mining investment and slower recovery in the non-mining sector.
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