THE Australian dollar is unlikely to return to the lower levels experienced before 2007, Reserve Bank governor Glenn Stevens says.
In an interview published on Wednesday, Mr Stevens said that while he expected non-mining business investment to pick up, the bank could not guarantee that monetary policy would provide an easy transition from mining to non-mining investment.
"We've got to recognise that monetary policy has limits to fine tuning," he told The Australian Financial Review in his first newspaper interview since taking office in 2006.
"We're not going to be able to absolutely guarantee seamlessly every handover from one source of demand to another."
He also predicted that the Australian dollar was unlikely to return to the low numbers of around 75 US cents that were the norm before 2007 - adding there were limits to how the bank could harness interest rates to counteract the strong dollar's contractionary effects.
"... the classic problem in a situation like this can be that you seek to compensate for a very high exchange rate with cheaper, lower interest rates.
"It can - in some circumstances - give you the asset credit build-up that then gets you into trouble later," he said.
But he said you could not rule out that the exchange rate might drop if the boom ends.
"But if this relative price shift turns out to have a good deal of persistence, even if not at current levels, then I think one could expect the exchange rate is around a higher long-run average as a result of that.
"I don't know what that average is, but it would be unlikely that it would be in the low numbers that we have become accustomed to until the last five or six years," he said.
And while he expected house prices to retrace some of the losses experienced since mid-2010, he said it would be concerning if prices returned to double-digit annual growth rates.
Mr Stevens also said that while a three per cent official cash rate for Australia might be low by historical standards, globally it is "pretty attractive".
"I think we have to recognise that and accept that that has some impact on where we set things."
Ultra-low interest rates in the US, Japan and Europe compared to Australia are helping to keep the Australian dollar high and economic growth moderate.
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