The economy is growing at a sluggish pace despite interest rates being at a record low, but the central bank still believes monetary policy is working.
The national accounts released earlier this month showed the economy growing at an annual pace of just 2.3 per cent and well below a level that is widely seen as needed to absorb new entrants to the workforce.
This comes at a time when the Reserve Bank cash rate sits at just two per cent.
But RBA assistant governor for economics Christopher Kent has told an audience in Canberra on Monday that monetary policy is "clearly working" to support demand.
"Although, it is working against some strong headwinds," he told the Australian National University.
This includes the significant decline in mining investment and fiscal consolidation by state and federal governments.
The exchange rate too "continues to offer less assistance than would normally be expected in achieving balanced growth in the economy", Dr Kent says.
He said home construction is growing strongly in response to low interest rates and is making some contribution to growth and jobs.
But he warned that in parts of the country, any further substantial increases in residential construction might run up against some supply constraints "putting further upward pressure on housing prices".
"As the bank has noted for some time now, large increases of housing prices, if accompanied by strong growth of credit and a relaxation of lending standards, are a potential risk for economic stability," Dr Kent said.
That is why the RBA is working with other regulators to assess and contain such risks that may arise from the housing market.
Spending growth has also picked up since 2013, but is still a little weaker than in the past.
He said this may reflect indebted households taking advantage of low interest rates to pay down their debts faster than has been the norm, perhaps in response to weaker prospects for wages growth.
At the same time, those relying on interest receipts, like retirees, may feel compelled to constrain their spending in response to the relatively long period of very low interest rates.
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