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Labour's Exchange Rate Policy Flounders

John Key MP
National Party Finance Spokesman

26 October 2004

Labour's exchange rate policy flounders

"The Labour Government has left small exporters high and dry, after raising expectations about the effect of exchange rate intervention," says National Party Finance spokesman John Key.

He is referring to the New Zealand dollar's rapid rise to more than 70 US cents and suggestions from the Prime Minister that her Government expects the currency will continue to appreciate.

"The rise in the exchange rate comes only a few months after Michael Cullen gave new powers to the Reserve Bank, which he said would help smooth currency peaks and dips.

"But as I predicted at the time, the policy is nothing but hot air. The Reserve Bank simply can't buy and sell enough of the Kiwi currency to make much of a difference.

"In light of the PM's case of foot in mouth over Air New Zealand shares, I thought she might have learned her lesson. But after speculating on the exchange rate today - I can see she did not.

"Clearly she's taking lessons from Michael Cullen who prematurely predicted to overseas dealers that the Reserve Bank would need to raise interest rates three more times," says Mr Key.

On radio today the Prime Minister said: 'at some point you know the dollar is going to go to a higher level. Now how long it will stay at 70 cents is another matter. It wouldn't be unhelpful for the dollar to be higher while oil prices are high for example,' she told Newstalk ZB.

"Ironically Helen Clark was singing quite a different tune on the exchange rate while in Opposition," says Mr Key.

'It (the Government) has refused to accept any responsibility for an exchange rate which continues to operate at levels which make it extremely difficult for our exporters to succeed,' she said in February 1997.

"The reality is that there is unlikely to be any relief for our strapped smaller exporters in the short term, with interest rates picked to rise later in the week.

"If they go up another three times, as predicted by Dr Cullen, the dollar could move close to parity with the Australian and reach post-float highs against the Greenback.

"If that happens exporters will then have even more reason to be concerned by Dr Cullen's planned big spend-up in election year, which will in turn fuel inflation, and put even more pressure on interest and exchange rates," says Mr Key.

Ends

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