Concern over currency but still no action

Concern over currency but still no action

The Reserve Bank must act on its concerns over currency appreciation say the New Zealand Manufacturers and Exporters Association (NZMEA). The Official Cash Rate was left at 2.5 percent this morning, but the Reserve Bank expressed concern over the level of the New Zealand Dollar.

Reserve Bank Governor Dr Alan Bollard commented that: “While helping contain inflation, the high value of the New Zealand dollar is detrimental to the tradable sector, undermines GDP growth and inhibits rebalancing in the New Zealand economy. Sustained strength in the New Zealand dollar would reduce the need for future increases in the OCR.”

NZMEA Chief Executive John Walley says, “Alan Bollard mentioned the options for controlling the exchange rate during the press conference – direct intervention, quantitative easing and capital controls. The reasoning for not using these methods seems to be more based on inertia than analysis.”

“The Swiss National Bank has demonstrated that if returns in the tradable sector are a priority then exchange rate stability can be achieved. Critics of intervention will point to the cost of intervention but it is worth noting that a one percent rise in the exchange rate costs New Zealand exporters around $200 million per year. That puts the cost of intervention into perspective.”

“There are a number of tools available to stabilise the currency,” says Mr Walley, “the only thing absent is the will.”

ENDS

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