28 June 2007

Current Account Deficit Still too High, Dollar Overvalued

The Wellington Regional Chamber of Commerce today welcomed the narrowing of the current account deficit to 8.5% of GDP, but warmed that this deficit is still far too high.

“The reduced deficit reflects buoyant commodity prices - particularly for dairy, and good growth in services exports. Services exports in the 12 months ending March 2007 totaled $12.25 billion or 26% of New Zealand’s total exports,” said Chamber CEO Charles Finny.

“The Chamber hopes that international currency markets take note of New Zealand’s continuing current account deficit challenges, and start pricing the New Zealand dollar at more realistic levels.

“The size of the current account deficit is further confirmation that the New Zealand dollar is substantially overvalued against key foreign currencies.

“We are expecting a correction in the New Zealand dollar of up to 30% against some currencies. Such a correction makes the differential between our interest rates and those in other OECD economies small in comparison. In contrast the risks are enormous.

“People speculating on the New Zealand dollar or chasing our high interest rates should take care”, Mr Finny concluded.

ENDS

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