RBNZ lessons from the Swiss

RBNZ lessons from the Swiss - 13 September

The Reserve Bank of New Zealand (RBNZ) should take the Swiss National Bank’s lead at the Official Cash Rate announcement on Thursday and take action on the exchange rate say the New Zealand Manufacturers and Exporters Association (NZMEA). Switzerland, like New Zealand, is a small trade exposed economy that relies heavily on export revenues and they have recently moved to peg their currency to support and maintain the competitiveness of their exporters.

Philipp Hildebrand, Chairman of the Governing Board of the Swiss National Bank made the announcement:

“The Swiss National Bank is therefore aiming for a substantial and sustained weakening of the Swiss franc. With immediate effect, it will no longer tolerate a EUR/CHF exchange rate below one Swiss franc twenty. The SNB will enforce this minimum rate with the utmost determination.”

NZMEA Chief Executive John Walley says, “This is the sort of approach New Zealand needs to take. It does not require a currency peg as the Swiss are using, any number of approaches can be adopted, but whatever the method chosen the same overt commitment to deal with an overvalued currency needs to be demonstrated to get the right reaction from currency markets.”

“As a comparison the RBNZ’s largely hands off approach encourages the currency markets to play that predictability without fears of any sustained intervention.”

“New Zealand must look to advance its own interests as the rest of the developed world are doing – this requires action from the Government and the RBNZ. More of the same don’t scare the horses approach will see an ever declining tradable sector and worsening debt problems as a result.”

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