SYDNEY (Reuters) - Australia's government could loosen or reform fiscal policy to bolster a weakening economy, Treasurer Josh Frydenberg hinted in a newspaper interview published on Friday.
The economy grew at its slowest pace in a decade in the March quarter, prompting the central bank to cut interest rates to a record low and leave the door open to a further easing in the coming months.
"There is this phenomenon of low inflation, relatively low unemployment and wages growth below where one would like it," Frydenberg told the Australian Financial Review.
"This is where monetary policy is being called upon in ways it may previously not have been ... and there are limits to what monetary policy can achieve," he said.
He gave no commitments or other details in the interview, beyond pointing to already-promised tax cuts. But his remarks will be welcomed by investors who are increasingly calling for public spending to stave off a recession.
The conservative government was unexpectedly re-elected last month after a campaign in which Prime Minister Scott Morrison promised to keep spending in check and bring the budget "back to black".
"I'm confident that we can continue to pay down the debt and run those surpluses while also having the reforms that generate the higher growth and not leave the work to monetary policy," Frydenberg said in the interview.
The Australian dollar had its worst week in a month, dropping 1.5% to $0.6892 as investors wagered that aggressive interest rate cuts would be needed.
On Thursday, a warning about falling earnings at discount department store Kmart and weak jobs data underscored the scale of the malaise. Australian three-year bond yields fell under 1% for the first time ever.
Futures imply a 66% probability the Reserve Bank of Australia will cut again in July and, if not, a reduction to 1% is considered very likely by August.
National Australia Bank and Macquarie on Friday became the latest banks to forecast a move to under 1%.
(Reporting by Tom Westbrook; editing by Darren Schuettler)
