Australia cenbank says lower A$ to support economy

SYDNEY, Feb 14 (Reuters) - A top Australian central banker on Friday said there were good reasons why the local dollar had fallen over the past year, but stopped short of declaring that it needed to fall any further.

Reserve Bank of Australia (RBA) Assistant Governor Christopher Kent offered no guidance on whether the bank felt the current level of the currency was too high or not.

"The Bank has noted for some time that lower levels of the exchange rate, if sustained, will assist in achieving balanced growth in the economy and bring about a quicker return to trend growth," said Kent, who heads the bank's economics department.

The central bank surprised some last week by dropping a reference in its policy statement to the currency being "uncomfortably high", seemingly stepping back from a long verbal campaign to push it lower.

The Australian dollar was hovering at $0.8983 on Friday, about two cents higher than when the RBA released its policy statement on Feb. 4.

The RBA last week also shut the door on further cuts in interest rates, at least for the time being, in part because the fall in the currency had added more to inflationary pressures than they had expected.

Still, Kent did not sound alarmed on the outlook for inflation.

"On present indications, inflation is expected to be somewhat higher than we'd thought in November, in part because of the further depreciation since then, but it is still expected to remain consistent with the inflation target," he said.

The central bank aims to keep inflation within a 2 to 3 percent band on average over the long term and currently its favoured measures of underlying inflation are running at around 2.6 percent a year.

The RBA has forecast a further acceleration to 3 percent by the middle of this year, but then expects inflation to slow back toward 2.5 percent over time.

Kent cited several fundamental forces behind the local currency's decline from above $1.0000 in the past year, including a drop in Australia's terms of trade and the U.S. Federal Reserve's winding back of stimulus.

He noted that foreign investment in Australia was set to fall in coming years as major resource projects were completed, particularly in liquefied natural gas.

"The decline in mining investment means that a decline in an important source of capital inflow over recent years is in prospect," said Kent.

"Given all of this, it was not so surprising that the Australian dollar has declined over the past year."

Still, Kent emphasised it was difficult to know for sure what the equilibrium level for the currency may be at any particular time, or to predict accurately what it might do in the future.

(Reporting by Wayne Cole)

((Wayne.Cole@thomsonreuters.com)(612 9373 1813)(Reuters Messaging: wayne.cole.thomsonreuters.com@reuters.net))

Keywords: AUSTRALIA ECONOMY/RBA