The Reserve Bank has warned improvements in living standards could be put at risk unless there is a dramatic increase in productivity as Australia's mining investment boom subsides.

In a speech delivered in Sydney today, RBA deputy governor Philip Lowe said average household incomes had increased dramatically over the past decade, despite overall economic output growing at a slower pace.

"The reason for this is the very substantial increase in Australia's terms of trade over this period," he said.

"With rapid growth in Asia pushing up the prices of commodities, Australia's export prices increased substantially relative to our import prices.

"It is this increase in the average value of what we produce per hour of work – not so much an increase in the average amount that we produce per hour – that has been central to the increase in our living standards over the past decade."

Dr Lowe says the trend has been helped by a historically high number of working-age people available in Australia's population.

However, he warns those favourable conditions are unlikely to continue.

"Recently, we have been producing more output per hour worked, but the decline in our terms of trade and slower growth in hours worked have weighed on growth in our per-capita income," he said.

"Over the next decade or so, if we are to achieve anything like the type of growth in real per-capita income that we have become used to, then a substantial increase in productivity growth will be required.

He said Australia can no longer rely on rising terms of trade to make it richer.

"If this lift in productivity growth does not take place, then we will need to adjust to some combination of slower growth in real wages, slower growth in profits, smaller gains in asset prices and slower growth in government revenues and services – in short, slower growth in our average living standard," he said.

"So the debate about productivity should not be seen as an esoteric one just for economists. Productivity growth matters and it matters a lot to our future living standards."

Dr Lowe encourages Australian businesses to find ways to become more efficient to boost productivity.

RBA sets high threshold for dollar intervention

Over the past year the RBA has repeatedly expressed concern about economic imbalances being caused by the persistently high Australian dollar.

Dr Lowe would not say whether the RBA is considering intervening in currency markets in an effort to lower the dollar's value.

"In the past we have been prepared to intervene in the currency market when it was clear the currency market was misaligned or not working well," he said.

"The threshold for intervention is very high, and it is not something that we would rule in or out.

He said the Australian dollar has been inflated in recent years by weakness in the US economy, the Federal Reserve's economic stimulus program, and an increased level on foreign investment in Australia.

"The process is now starting to correct," he said.

"The level of business investment in Australia is coming down. In the US, let's hope the level of business investment is rising from its record lows."

"And as that adjustment takes place, one would expect some adjustment in the relative value of the currency."