* RBA gov reiterates steady path for interest rates
* Says fiscal spending needed to stimulate economic growth
* Notes danger of debt-fuelled bubble and bust
(Rewrites throughout, adds economist comment)
By Swati Pandey and Wayne Cole
SYDNEY, Feb 24 The head of Australia's central
bank said on Friday that the economy would benefit little from
cutting interest rates already at record lows, putting the onus
on the government to make fiscal reforms and find ways to
Reserve Bank of Australia (RBA) governor Philip Lowe told
lawmakers that growth should come from more investment in public
infrastructure, while noting a lack of business investment
despite the policy cash rate of 1.50 percent.
"With interest rates so low...it would be a better strategy
to create new assets and the best new assets in our country are
infrastucture, particularly in transportation networks," Lowe
told a parliamentary economics committee in Sydney.
"I have long thought there must be quite a few investment
projects in urban transport, where the return would be greater
than the government (10-year) borrowing rate of 2.8 percent," he
The central bank chief said that monetary policy was not the
best way to stimulate demand in the economy.
"It's really in the hands of the parliament to create an
environment where firms want to invest and people want to
spend," he added.
The ruling coalition has failed to press ahead with its
legislative agenda since Prime Minister Malcolm Turnbull won a
razor-thin majority last July.
Policies such as corporate tax cuts have been blocked in a
divided Senate, leaving Turnbull's popularity at its lowest in
over a year.
"Looks like we are talking about a status quo (on fiscal
policy) for a couple of years," said Michael Workman, senior
economist at Commonwealth Bank of Australia in Sydney.
"It's very very difficult for the government to implement
any kind of programme to restore a stronger budgetary position,
to stimulate the economy again in the way that is required...and
that's because of the intransigence in the Senate."
Since taking over the reins at the RBA in September, Lowe
has repeatedly emphasised the limits to monetary policy and
earlier this week said further cuts in interest rates would not
be in the national interest.
Data out this week showed investment had fallen in every
quarter of last year.
Domestic consumption has also been subdued with retail sales
growing at a tepid pace. There is a high degree of slack in the
labour market, adding pressure on wages growth which is stuck at
High levels of household debt combined with subdued incomes
were making households wary of spending freely, said Lowe.
The ratio of household debt to disposable income is at an
all-time peak around 180 percent, while the saving rate has
fallen. Mortgage debt stands at A$1.7 trillion, larger than the
country's annual economic output.
"There is a balance to be struck. Too much borrowing today
can create problems for tomorrow, because debt does have to be
repaid," Lowe said.
"The balance that is required is to support spending in the
economy today while avoiding creating frugalities in household
balance sheets that could cause problems for the economy later
on," he said.
The futures market has almost priced out any chance
of a rate cut this year, with some investors even toying with
the idea of a rate hike by early 2018.
Still, Lowe said he was paying "close attention" to trends
in the labour market as a high and rising unemployment rate
could become a catalyst for a rate cut.
The unemployment rate has been steady for a little over a
year at around 5.7 percent, although Lowe said a "sustainably
lower unemployment rate should be possible in Australia."
The head of the central bank appears before the committee
twice a year to answer questions on the economy and monetary
(Reporting by Swati Pandey and Wayne Cole, Editing by Simon