Reserve Bank governor Philip Lowe has doubled down on the value of targeting consumer price rises and said there could be more harm than good from lowering the RBA's target range.

Key points: RBA governor Philip Lowe says the board is prepared to cut interest rates further if the economy does not grow fast enough

RBA governor Philip Lowe says the board is prepared to cut interest rates further if the economy does not grow fast enough Even if it does not cut rates, Mr Lowe said "it is reasonable to expect an extended period of low interest rates"

Even if it does not cut rates, Mr Lowe said "it is reasonable to expect an extended period of low interest rates" The RBA believes that greater participation in the labour market is a key factor keeping wages growth and inflation low

Ahead of Mr Lowe's speech at the annual Annika Foundation lunch in Sydney today, there was some anticipation that he may relax the RBA's commitment to its current 2-3 per cent inflation target, which is a little higher than targets in many other developed economies.

"Lowering the target might have the short-run advantage of allowing us to say we have achieved our goal, but shifting the goalposts hardly seems a good way to build long-term credibility," he told the annual Annika Foundation lunch in Sydney.

"Shifting the goalposts could also entrench a low-inflation mindset."

Aside from that, Mr Lowe argued changing a long-standing framework could be counterproductive for the economy.

"A high degree of uncertainty about future inflation hurts both investment and jobs. The economy works best if there is a degree of predictability," he said.

The RBA boss was keen to qualify that statement by saying, "we are not inflation nutters" but instead seek "to deliver low and stable inflation in a way that maximises the welfare of our society."

In the current context of inflation that has been below target for essentially all of his nearly three-year tenure so far, with unemployment showing early signs of rising amidst a steep home building downturn, Mr Lowe explicitly said further interest rate cuts are possible.

"If demand growth is not sufficient, the board is prepared to provide additional support by easing monetary policy further," he said.

"However, as I have discussed on other occasions, other arms of public policy could also play a role in this scenario."

Even if interest rates do not fall further from here, Mr Lowe assured Australian borrowers that they need not fear rate rises in the foreseeable future.

"Whether or not further monetary easing is needed, it is reasonable to expect an extended period of low interest rates," he said.

"It is highly unlikely that we will be contemplating higher interest rates until we are confident that inflation will return to around the midpoint of the target range."

Extra workers caught RBA forecasters off guard

As for why inflation has remained stubbornly low even over the previous couple of years when jobs growth had been very strong, Mr Lowe explained that the record share of people in work or looking for it had caught the bank's forecasters off guard.

"When we prepared our forecasts in mid-2017, we did so on the basis that the share of the adult population participating in the labour market (the participation rate) would remain steady over the next couple of years," he said.

"At the time, this was considered a reasonable forecast: while we expected some increase in participation from an encouraged worker effect because of solid employment growth, we thought this would be offset by the ageing of the population.

"Employment growth has been much stronger than expected and the participation rate has risen by 1.5 percentage points, which is a large change over a fairly short period.

"Put simply, the strong demand for labour has been met by more labour supply."

That, in turn, means unemployment has remained above 5 per cent, underemployment has stubbornly held near record high levels and wages growth has therefore only picked up very modestly.

Tech and globalisation boost consumer power, lower prices

Aside from an increased supply of workers keeping a lid on wages, Mr Lowe also said there were global forces pushing the price of goods and services lower.

"Globalisation and advances in technology have changed pricing dynamics," Mr Lowe said.

RBA governor Philip Lowe said lowering the inflation target could "entrench a low-inflation mindset." ( ABC News: John Gunn )

"There are two main channels through which this appears to be happening.

"The first is by lowering the cost of production of many goods and the second is by making markets more contestable and increasing competition.

"The main effect of these changes should be on the level of prices, rather than on the ongoing rate of inflation. But this level effect is playing out over many years, so it appears as persistently low inflation."

The combination of globalisation and technology is allowing consumers — both households and businesses — to seek better deals from around the world, which Mr Lowe said is likely to be permanently lowering the level of prices.

"Better price discovery keeps the competitive pressure on firms," he observed.

"The end result is a pervasive feeling of more competition. And more competition normally means lower prices."

'Many people feel like they've already borrowed too much'

Mr Lowe remains hopeful, however, that there may be some factors that will boost the economy, wages and inflation.

One is the end of the mining investment bust, with the RBA governor expecting the resources sector to increase its spending on expansion next year for the first time in six years.

Another is the end of the house prices correction, particularly in Sydney and Melbourne.

"I'm hoping after very large adjustments in the Australian housing market that process is running its course and that will give people a bit more confidence to spend," Mr Lowe said.

Currently, he is not concerned that an end to the housing downturn may be the beginning of another price boom or bubble.

Mr Lowe said that was because households were more cautious about borrowing and banks about lending to them.

"Banks have less appetite to lend at the moment than they did a few years ago. There's been a significant tightening in lending standards and in some respects it seems to me that some institutions have become excessively risk averse," he said during a question and answer session after his speech.

"The appetite by the household sector to borrow is less than it once was.

"I think many people in the community feel like they've already borrowed too much and now is a period to consolidate your balance sheet rather than to go and take out more debt, even at low interest rates."