Reserve Bank governor Glenn Stevens has delivered a wake-up call to mortgage holders and Federal politicians that interest rates cannot be driven down further to prop up the economy.
Mr Stevens, in Hong Kong, said yesterday that Australia's economic performance in recent years while not bad, was not good enough.
Despite demands from many quarters for the Reserve to cut interest rates to help struggling sectors such as manufacturing and tourism, Mr Stevens told an Asian investment conference that rates could not be used to hold back necessary economic structural change.
The dollar would remain high, not because of current interest rates but because international investors recognised Australia's strong economic story.
It could only improve if productivity was improved and that had to be done by businesses and governments.
"Overall, recent economic performance in Australia is not too bad, particularly when compared, over a run of years, to a number of other advanced economies," Mr Stevens said.
"But neither is it so good that it cannot be improved. The full range of policies - macroeconomic and structural - need to play their part in seeking that improvement."
While the central bank has left official rates at 4.25 per cent, banks have defied the Reserve in recent months by lifting home loan rates.
Mr Stevens said, traditionally, Australians had been overly confident about the economy's performance and the standard of living.
He said this had been reversed with overseas investors much more upbeat about Australia's short and long-term economic performance.
He said this lack of confidence domestically was likely due to the structural change being imposed on the country.
"We have to adapt to changing times," Mr Stevens said. He said some sections of the community were focusing on the difficulties rather than the opportunities.
While parts of the economy struggle, the latest measure of spending by the Commonwealth Bank suggests the situation is not as dire as some have made out.
The bank's measure of credit and debit card transactions through its point-of-sale terminals showed activity up by 0.7 per cent in February after 0.9 per cent increases in December and January.
There were strong gains in the clothing and retail segments and also in amusement and entertainment but hotels and motels were down.