Active Central Banks

Active Central Banks – 8 May
The Reserve Bank of New Zealand (RBNZ) has admitted to intervening in currency markets responding to the appreciation of our currency, say the New Zealand Manufacturers and Exporters Association (NZMEA).

NZMEA Chief Executive John Walley says, “It is good to see the RBNZ make some moves to lower our currency, but they can do much more than “take the top off the rallies”. The sharp drop in the currency across the board shows just what action from a central bank can do. If the RBNZ were to commit to a more long term set of actions to bring down the currency, we would see a sustained effect on the dollar. This could be achieved through a co-ordinated mix of currency intervention, monetary policy and other macro-prudential tools.”

“We consistently reference the example for the Swiss Central Bank using the infinite capacity of a central bank to place and enforce a currency ceiling.”

“The Reserve Bank of Australia (RBA) has also cut a further 25 basis points off its cash rate to a record low 2.75%. They are taking action against the appreciation of their currency.”

“Much of Australia’s recent economic success has been built on the back of their strong natural resource based businesses. Now their exporting sector is struggling, largely due to strength of their currency.”

“Why is this important for New Zealand? Australia has been a bright spot for exporters in recent times; meaning businesses exporting to Australia for Australian consumption have been doing okay, compared to those selling into the U.S and Europe. The RBA takes action to lower the pressure on the AUS$ and places upwards pressure on the NZ$; this will hurt New Zealand exporters.”

“We are pleased to see the Reserve Bank of New Zealand (RBNZ) commit to putting new tools into place for increasing reserves for high Loan to Value Ratio loans as well as some currency intervention.”

“Even so, our dollar remains significantly overvalued, hurting exporters.”

ENDS

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