Still scared by a currency target?

Still scared by a currency target? - 24 April

The Government and the Reserve Bank (RBNZ) must back up their words with actions in response to an overvalued exchange rate say the New Zealand Manufacturers and Exporters Association (NZMEA). The Reserve Bank makes its Official Cash Rate announcement on Thursday with no change expected, but recently released RBNZ minutes show that the bank was uncomfortable with the level of the New Zealand dollar when it was at 63 US cents. It is now at 81 US cents.

NZMEA Chief Executive John Walley says, “It seems the Reserve Bank and the Government have long agreed with our position that the exchange rate is well overvalued. We see other countries manipulating their currencies when this happens. This begs the question why do we persist in doing nothing?”

“The fear of policy change seems to be the main barrier, however, this wait and hope attitude comes at a huge cost to the real economy.”

“A cut the OCR and a commitment that, when necessary in the future, more emphasis will be placed on prudential controls is now required.”

“For every one percent the currency rises exporters lose approximately $200 million in export earnings,” says Mr Walley. “This will lead to more debt, lower growth, fewer jobs and a larger current account deficit.”

“When the policy framework you have is turning in these results what is to fear from change? There are a number of countries who have started this process with some success; they should be the first port of call for New Zealand’s policy makers.”
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