Two issues stood out in the central bank's latest quarterly statement, apart from the usual warnings about Europe and China - productivity and the Australian dollar.

Concern on these counts in the 70-page economic update isn't too surprising, because both offer food for thought when trying to second guess the interest rate outlook.

Back in March the Reserve Bank of Australia (RBA) made clear the need for productivity gains to hold down domestic cost pressures.

Since then, the central bank has cut the cash rate twice - in May and June - and official inflation readings have shown the consumer price index at a 13-year low and underlying inflation at the bottom of the RBA's two to three per cent inflation target.

Fast forward to the August 10 quarterly statement on monetary policy and it would appear the bank's worries have been soothed ... for now.

"The moderation in inflation is consistent with broad-based competitive pressures, soft demand in some parts of the economy and an improvement in productivity," the report says.

However, the RBA warns it's too early to be "definitive about how enduring the pick-up in productivity will prove to be".

And on its list of risks to the domestic outlook, which include the European debt crisis, China's growth outlook and budgetary problems in the United States, sits productivity - or the lack of.

If productivity growth is not sustained "as assumed", it would tend to put "upward pressure on inflation".

In the past week, there have been two views on Australia's productivity achievements.

Treasurer Wayne Swan clearly believes productivity is on the mend, pointing to its 5.3 per cent growth in the past year - the largest increase in a decade.

"I agree with everyone who says we should be doing better on productivity, and that our success as an economy depends on it," he told International CEO Forum Foreign Investor Dialogue in Canberra.

"But what I can't agree with is those who say productivity is currently in decline, when it simply isn't borne out by the facts."

Many business groups argue the government needs to do more to boost productivity, such as by allowing more flexible workplaces.

But Swan says investment generated by the mining boom is boosting productive capacity in the economy.

"As the mining investment boom eventually winds down as we expect, the mining export boom should ramp up," he said.

Global business consultant McKinsey and Company takes a different view.

Its research arm - McKinsey Global Institute - believes Australia's two-decade economic expansion is at risk.

It found the mining boom accounted for more than half of the recent growth in national income, masking declines in the productivity of both labour and capital.

"The Australian economic formula has switched from being productivity-led to being boom-dependent," McKinsey principal Chris Bradley said.

"A return to healthy productivity performance will be needed to ensure growth continues beyond the boom."

Another issue for the RBA is the strength of the Australian dollar, which has been worrying trade-exposed businesses for some time.

The currency's appreciation has helped to keep inflation pressures under control.

But the central bank is questioning its sustained elevation.

The dollar is high, despite the deterioration in the global economic outlook, fragile global financial market sentiment and declines in key commodity prices.

The RBA concedes its strength may partly reflect increasing international demand for high-rated Australian-dollar securities.

"However, it is possible that the persistently high level of the exchange rate may be more contractionary for the economy than historical relationships suggest," it warned.

Former RBA board member Warwick McKibbin has raised similar concerns because of the currency's negative impact on sectors of the economy such as manufacturing and has called on the RBA to intervene.

But analysts at Commonwealth Bank of Australia believe direct intervention in the level of the currency would be counter-productive.

Chief economist Michael Blythe and chief currency strategist Richard Grace argue intervention is not without cost, giving the example of the Swiss National Bank's (SNB) recent efforts to curb the strength of the Swiss franc.

"Based on the SNB experience, the RBA may have to spend some $1.5 billion per day defending a desired level of the AUD once that level is obtained," they said in a client note.

SNB's efforts had a disruptive effect on the Swiss economy and the country's interest rates have been forced into negative territory.

"This may be appropriate in a weak economy experiencing deflation, but the Australian economic backdrop is quite different," Blyth and Grace warn, pointing to above-trend growth and robust exports.

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