Can anyone explain why the Reserve Bank does not change its policy and reduce interest rates? It would be a win-win outcome.

FACTS.
• New Zealand interest rates are high by international standards
• The New Zealand dollar is at a very high level.
• High interest rates attract international funds to New Zealand especially while countries such as Japan are printing money in an attempt to expand their economy.

PROBLEMS.
• The high level of the NZ$ reduces export business and generates losses for exporters.
• The high value of the dollar reduces the cost of imports and encourages consumption.

POLICY CHANGE NEEDED.
• Drop interest rates by say .25% and see what happens.

OUTCOME.
• NZ $ value would drop.
• Exports would increase and be profitable.
• Imports would be more expensive.
• Government borrowing costs would drop.
• Inwards flow of funds would still continue while our interest rates were still so high.
• Interest income for savers would decline so more savings would be likely to head for the Stock Exchange.
• Any problem re property investments would be easily managed through bank loan ratios.

David Underwood is an accountant who lives in Kelburn.

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