(Reuters) - Australia's central bank chief said on Friday there is already a good deal of interest rate stimulus in the economy, but reiterated the bank could ease interest rates further if needed given a benign inflation outlook.
Reserve Bank of Australia (RBA) Governor Glenn Stevens was also optimistic that investment in non-mining parts of the economy will eventually pick up, filling any void left by a coming peak in the resource spending boom.
"This transition will not necessarily be seamless - these things seldom are - but there are reasonable prospects of it occurring over time," Stevens told lawmakers in his twice-yearly parliamentary testimony in Canberra.
"Overall, there is a good deal of interest rate stimulus in the pipeline. At its meeting earlier this month the board judged that it was sensible to allow it time to do its work."
He added that because of a stubbornly strong local dollar, rates are already a bit lower than they would have been. Yet, Stevens said the tame inflation outlook meant there is room to cut rates further should that be necessary to support demand.
The RBA has slashed 175 basis points from its cash rate to a record low 3.0 percent in the past 15 months. It left rates unchanged at its first policy meeting of 2013 early this month and appeared to have switched to a wait-and-see mode.
Stevens also sounded more upbeat about the global economy, noting the slowdown in China, Australia's single biggest export market, had come to an end.
"The medium-term outlook for China is for a less hectic pace of growth than we saw on average over the past decade," he said, but added that because the Chinese economy is now so much bigger, even less rapid growth is of global significance and important to Australia.
"One might conclude from this that the RBA has an easing bias, but is in no rush to ease further and may continue to sit still to assess incoming info," he said.
The Australian dollar rose about half a U.S. cent to a high of $1.0309 on Stevens's upbeat remarks. Since late 2010, the Aussie has held above parity against its U.S. peer for most of the time, reaching a peak near $1.1100 in mid-2011.
The high dollar has been a drag on many parts of the economy and lawmakers on Friday sought to clarify the central bank's stance on it.
Stevens said he was "a bit surprised" it has not fallen more than it has, but noted there was no justification for direct intervention to weaken it yet. He added that the Aussie dollar was not overvalued by a huge amount.
Investment spending by businesses outside of the mining sector has been disappointing so far, but Stevens said there are good reasons to expect it will strengthen in time.
In particular, housing investment should pick up given low interest rates, strong population growth, and signs that house prices are rising, he said.
The RBA recently trimmed its growth and inflation forecasts, expecting a below-potential growth rate of around 2.5 percent over 2013, and underlying inflation to be well contained in its 2-3 percent target band.
Investors suspect rates might be cut further given softness in parts of the domestic economy, especially those exposed to foreign competition and the high local dollar.
Debt markets are giving a one-in-four chance of a move at the RBA's March 5 board meeting and have fully factored in the chance of a quarter-point easing over the next 12 months.
(Reporting by Ian Chua in SYDNEY; Additional reporting by CANBERRA bureau; Editing by Eric Meijer)