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"It is likely though that we will require an extended period of low interest rates to reach full employment and for inflation to be consistent with the target."
Dr Lowe conceded low interest rates werehurting those with savings,admitting there was a balancing act in dealing with the economy.
He said a range of issues,from slowing global population growth to geopolitical tensions,meant central banks were not getting the same reactions from interest rate cuts as has been the norm.
"We recognise that monetary policy is not working in exactly the same way that it used to,"he said.
Traditionally,low interest rates have encouraged businesses to borrow money for new investment.
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OECD figures released on Tuesday revealed foreign direct investment flows fell by 20 per cent in the first half of this year. They dropped 5 per cent in the first three months and then by 42 per cent in the three months to the end of June.
Dr Lowe said while there were some Australian businesses using current low rates to make long-lived investments,more should be taking advantage of the current unusual situation.
"At low interest rates,many investments that didn't make sense at higher interest rates should now make sense,"he said.
"This means that low interest rates give us the opportunity to lengthen our horizons and think about projects with really long-term payoffs."
He made the comments after Mr Keating said the government should take advantage of current low interest rates to invest in very large infrastructure projects which had bipartisan support.
Former prime minister Paul Keating says governments should be using low interest rates to invest in infrastructure.Credit:AAP
He nominated a fast train between Newcastle and Sydney,which could be extended to the NSW south coast,as an idea that would deliver substantial economic and social benefits.
"What we want is a long program of really important infrastructure,"he told broadcaster Alan Jones.
"A fast train from Sydney to Newcastle would completely change the housing pressures inside Sydney. Essentially you'd turn Newcastle into a suburb of Sydney but that relieves the housing pressures in Sydney,it lifts housing values in Newcastle."