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A ‘yo-yo’ currency kills export growth

21 September 2006.

A ‘yo-yo’ currency kills export growth

The Canterbury Manufacturers’ Association says that although the current account deficit has narrowed in the months since March, the strengthening of the NZD will undermine export led growth in the economy. The Association says that the absence of cohesive behaviour between Michael Cullen and Alan Bollard has resulted in New Zealand becoming a good bet for exporting currency and a bad place to try and build a tradable export business.

“The news that the volume of exports has risen is encouraging but for this to be sustained there needs to be less volatility in the dollar” says CEO John Walley. “There was some relief for exporters and those who rely on foreign exchange earnings over the past few months as the NZ dollar declined with softening attitudes to interest rates in New Zealand and rates rising in the rest of the world. Exporters felt a bit of the pressure lift, particularly on the all important Australian dollar for manufactured exports”.

“But what has happened in the past week or so is that the Government and Reserve Bank have sent out different messages. One the one hand, Michael Cullen was issuing warnings as to New Zealand’s trade figures trying to pressure the dollar. Next, there was a hawkish statement from the Reserve Bank Governor warning that interest rates could rise, lifting the lid on the export of Kiwi dollars”.

“How can New Zealand exporters build international businesses, and cope with a yo-yo currency.?”

Mr. Walley says that the Government needs to better link fiscal and monetary policy as to counter the volatility in the Kiwi dollar. “There needs to be cohesion between the Government and the Reserve Bank. Inflationary policies pursued by Government at the very moment the Reserve Bank feels the need to push back against inflation does not help close the trade deficit or support the development of export businesses”.

“There is a lot of money being pushed into the economy as the Government is paying for its election promises and people are spending more” says Mr. Walley “however this is happening at the same time as exporters are being squeezed by rising costs and imports. The result is inflation to which the Reserve Bank had to respond and this has created the recent instability and uncertainty in the exchange rate”.

“The volatility currently being experienced with the New Zealand dollar is great news for dollar exporters but not for New Zealand based tradable exporters. A yo-yo currency damages export outcomes and ultimately the viability of the New Zealand economy”.

ENDS

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