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Govt fully aware its borrowing programme is creating demand for NZ$, potentially pushing currency up, English says

Posted in News Updated
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The Government is defending its decision to borrow more than it requires for the current year, and is "fully aware" that selling government bonds to overseas investors could be one factor pushing up the New Zealand dollar.

The NZ dollar hit a post-float high of 82.6 US cents last week, raising questions of whether the Reserve Bank could intervene in currency markets to push the currency down.

Prime Minister John Key has said he thinks the main reason for the high NZ dollar against the US dollar is due to an inherent weakness in the greenback, as the US Federal Reserve prints money in its efforts to stimulate the US economy.

However, instead of investing those dollars in the US economy, investors are looking to countries such as New Zealand and Australia which offer higher rates of return than in the US, where interest rates are close to 0%.

Some commentators, as well as ACT Party leader Don Brash this morning, have pointed to the New Zealand Government’s borrowing programme, where roughly 60% of bonds are sold to overseas investors, as one factor creating demand for the currency and therefore pushing up the New Zealand dollar.

The Council of Trade Unions this morning also attacked the government for borrowing more than it required for the current year, whilst saying it needed to cut schemes like KiwiSaver and Working for Families in order to get its books and borrowing requirements under control. CTU economist Bill Rosenberg said the government was misleading and scaring people by saying it had to borrow NZ$380 million a week, when in fact some of this was being held to fund next year's deficit.

The Government is running a NZ$16.7 billion deficit before gains and losses for the current year to June 30, requiring an average NZ$320 million in borrowings a week, while running a borrowing programme of up to NZ$20 billion for the year, meaning an overall average borrowing requirement of NZ$380 million a week. English has repeatedly said the extra borrowings in the current year are to front-load next year’s requirements to cover an expected deficit of NZ$9.7 billion.

The extra borrowings this year were being made at favourable interest rates while demand for New Zealand government debt was strong, and had been brought forward in the face of an escalating European debt crisis, which could potentially shut down New Zealand’s funding lines, English has said.

Influence on the NZ$

Speaking on National Radio this morning, English said the Government’s borrowing programme was “potentially one influence among a number” pushing up the New Zealand dollar.

“We’re very aware of that – it’s one of the reasons why in the budget we’ve moved to cut government borrowing quite considerably,” English said.

“In fact, compared to other countries, we’ve got one of the faster rates of deficit reduction over the next four or five years compared to almost any developed country, and that is one of the reasons we’ve done it,” he said.

“We’re fully aware of the impact it could be having on the exchange rate. That is creating a strong headwind for exporters, and we need to reduce that head wind if we possibly can.”

Asked whether the Government had made a mistake by borrowing so much now, English replied he did not think so.

“When you look at the financial markets we’re borrowing in, they’re struggling with the potential insolvency of Greece and Ireland, there are now doubts about Spain and Portugal. The people who lend to them are the same people who lend to us, and I think the less active we are in the debt markets over the next 12 months to two years, the better for New Zealand,” English said.

'We're not playing games'

Meanwhile, Prime Minister John Key said the NZ Debt Management Office had a number of different requirements that triggered the need for government borrowing.

“For instance, where we have a maturity of a previously issued bond, then that will require a certain amount of refinancing,” Key said to media in Parliament Tuesday morning.

“Then there’s new debt that’s created because of the deficit. So if we go and have a look at it, there’s been a number of numbers. The Minister of Finance, the week of the budget actually said some weeks we’ve borrowed a billion dollars,” Key said.

“But on average, if you go and look at it, the deficit this year was NZ$16.7 billion – that has a new borrowing requirement of NZ$320 million a week. It dramatically reduces next year – it halves – and in the year after it’s gone.”

There were no games being played for the government in terms of how much it needed to borrow, Key said. The government had been talking about borrowing on average NZ$300 million a week for the current financial year, which had risen lately to NZ$380 million as borrowing was brought forward due to low interest rates so the government had cash to pay for costs such as those associated with the Christchurch earthquake.

The government's NZ$16.7 billion deficit for the year required an average NZ$320 million a week over the year, Key said.

Asked whether bringing forward the government’s borrowing requirements for next year was pushing up the New Zealand dollar, Key replied:

“I think it’s actually the opposite way around. The DMO are the ones that look at their forward maturities, but they make the decision on when is the best time to borrow. I think they weigh up what is going to [have] the least impact, if you like, on the taxpayer, and on the overall economy.

"So where interest rates are low, as they are at the moment, [and] actually there’s a strong appetite to buy New Zealand bonds, then that often helps to do that at the moment," Key said.

"Now not all of that necessarily comes from offshore, some of it’s domestically borrowed – there’s a range of different things happening there," he said.

(Updates with video of English on debt & NZ dollar, PM Key's comments)

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28 Comments

If the Council of Trade

If the Council of Trade Unions have only just figured out that the government's borrowing programme this year is bigger than its deficit in order to front-load next year's borrowing requirements, then what on earth have they been doing all year?

I thought their explanation

I thought their explanation for why they're borrowing it now was pretty good.

I think the action by the DMO

I think the action by the DMO is proof they don't believe the Treasury/Government forecasts for growth!

In other words, borrow now before tshtf.

That would imply that the DMO

That would imply that the DMO act independently of Treasury/Govt.  I would assume that they only borrow what they're told to, therefore, Treasury/Govt don't believe their own forecasts for growth.

Wouldn't the fact they think

Wouldn't the fact they think money is going to be harder to borrow, and interest rates higher on their borrowing (hence why they are borrowing now) mean that they think lending will be tightening and rates higher because economies overseas (and hopefully here) will be ramping up? So doesn't that mean they believe the economy will improve? And they said they wanted to take advantage of the high interest in kiwi bonds right now. That interest may not be there once things kick off a bit elsewhere and people have other choices of where to put their money?

I mean who knows what they REALLY think but that's what I got from the article.

Wierd...if I dont borrow

Wierd...if I dont borrow anything I dont pay any interest at all....so instead I'll borrow now pay a bit less this year than I might next year and et it sit as cash and I have to pay interest even though im not using it......Im doing this because of what? serious risks in the global markets? yes....cant see why else...

regards

Keep up the good work Bill.

Keep up the good work Bill. Kiwi now over 50p, so I'm looking forward to a nice cheap holiday in UK later in the year.

I hope the unemployed can find something in Oz, there's not much here it seems.

It's called "cooking the

It's called "cooking the books". Make the debt look really bad and then make our even  worse situation in few years look better artificially  ( i could of said "recovery" but that's BS)

English has yet again been caught out at his own game.

Hows that winter going NZ?

Fairly Mild Justice...weather

Fairly Mild Justice...weather by  all accounts reasonable not too cool yet....fish have left the harbour...Bolly still caught in the lose lose trap laid for him...by Banky boy...so banks getting back to lending 95% on a 17 to 21 leverage.....ah yes it's all going swimingly  if you happen to be a turd with a good backstroke.

Hows things Stateside....settling in ..?...Stay well..! 

Yeah not bad. Santa Cruz is

Yeah not bad. Santa Cruz is pretty laid back but still busier than NZ. House prices here are still dropping, and the big debt ceiling issue is looking interesting. You probably heard Moody's and S & P's "too late to the party" comments? Credit agencies really are a joke!

For those coming over at anytime, you NOW get both hands scanned and a the usual FBI photo taken if not a US natural citizen. Went to Hawaii a few weeks back and had to go through the microwave scanner, took about 2 seconds and got hand swabbed for drugs! Fucking paranoid country man. Just had to laugh really as they are such a sad bunch of losers the TSA   

 

Instead of trading currencies

Instead of trading currencies John Key now gets to play with one, Great.

 

So having to pay interest on

So having to pay interest on much more debt doesn't offset the supposed lower interest rate?

After all their lecturing about rebalancing the economy, they are going about rebalancing it in a strange way.

Yes philthy it does seem

Yes philthy it does seem strange...but then maybe they are telling the truth here..when we are so used to a cloud of lies.

Perhaps 'they' know more about the piigs fiasco and the Fed fraud than we can get from the comment streams. Maybe the next few years will prove to be the inflation gut buster we have said will arrive on the back of the Keynesian madness and all the rest.

I think the question Cunliffe was incapable of seeing let along asking was...what are the time terms on these extra loans!....to be of any use they would have to be long enough terms to straddle any piigs/fed collapse timespan.....the piigs and euro endgame is nigh but how long will it drag on for...if it's to be just 2 years then the extra debt terms would need to be 4 years...but what if the whole european heap of debt implodes at the same time that the US bond market spews its guts...and we enter ten years of depression....

Well speculated. 

Well speculated. 

Yeah I disliked Labour big

Yeah I disliked Labour big time too, but now I'm struggling a bit with these guys as well, more than I thought I would.

Asked whether the Government

Asked whether the Government had made a mistake by borrowing so much now, English replied he did not think so.

The extra borrowing was no mistake - one way or another it will add to our GDP before the election as intended.

Question 1: How can a government produce short term stimuls of an economy before an election while appearing to be fiscally prudent?

Answer 1: Borrow money in advance (any excuse will do) and then allow their central bank to feed it into the private sector at government subsidised interest rates (an artificialy low OCR).

Question 2: What happens to the economy after the election when the government wants its advance borrowing back from the private sector?

Answer 2. I am open to suggestions, but I suspect it gets ugly fast.

So wild bill thinks we will

So wild bill thinks we will get a strong recover with oil at,

"In a poll of global energy company executives conducted this April by the KPMG Global Energy Institute, 64% of those surveyed predicted that crude oil prices will cross the $120 per barrel barrier before the end of 2011.  Approximately one-third of them predicted that the price would go even higher, with 17% believing it would reach $131-$140 per barrel; 9%, $141-$150 per barrel; and 6%, above the $150 mark."

http://www.cbsnews.com/stories/2011/06/05/opinion/main20069182.shtml

and throw in US house prices have collapsed more than the GD and it isnt over yet,

"America clocked up a record last week. The latest drop in house prices meant that the cost of real estate has fallen by 33% since the peak – even bigger than the 31% slide seen when John Steinbeck was writing The Grapes of Wrath."

http://www.guardian.co.uk/business/2011/jun/06/us-economy-decline-recove...

and such house price collapse wont happen here?

yeah right Bill...

regards

Marbles, perhaps,

Marbles, perhaps, Forlorn?

They use little ones for that, I'm told.

Might be your scene.

 

 

Shame for our exporters

Shame for our exporters (A.K.A. employers)

Blah

Blah

BLAH ! ........ Belarus

BLAH ! ........ Belarus League of Alcoholic Homosexuals ....... what about them ?

Bet the Greek PM and finance

Bet the Greek PM and finance minister wish they had such foresight as to borrow so much that today they'd have enough to pay their bills.  Political nirvana would have ensued - their citizens would still think they knew what they were doing and life would be so much less stressful..

With NZ drowning in a sea of debt it's easy to see how our pollies will soon be totally and utterly distracted by it, dig themselves deeper, blame everyone and anyone - then lose any chance of re-focusing on solutions to our problem.  Some options are:  Boost production, buy bullion or go to the casino and put all the surplus borrowed money on 11 black.

This will have Iain fizzing

This will have Iain fizzing with excitement.

 "Countries everywhere are facing debt crises today, precipitated by the credit collapse of 2008.  Public services are being slashed and public assets are being sold off, in a futile attempt to balance budgets that can’t be balanced because the money supply itself has shrunk.  Governments usually get the blame for excessive spending, but governments did not initiate the crisis.  The collapse was in the banking system, and in the credit that it is responsible for creating and sustaining"

 http://www.marketoracle.co.uk/Article28533.html

and the swine who controlled the banking system and ran with the "game" are now either resting in luxury mansions, travelling between numerous holiday palaces and enjoying the pleasures that stonking piles of wealth can bring...or they are still in the game still reaping the bloated incomes...supported by idiot govts and equally stupid Reserve Banks bosses.

The peasants will pay for the losses and the graft and rorts and vote buying scams.

Within, is also the answer to the pinky green demand that Kiwibank be the govt bank and not Westpac.....no way will National do this because they know the socialists will return in 017 or 021 at the latest and if Kiwibank were "it", Labour would not hesitate to wallow in the rorts with the newfound money machine.

To all on this thread. My

To all on this thread. My apologies for not keeping a closer eye on it - i've deleted a whole stream of comments. 

Our commenting policy is clear, and at the bottom of all our articles.

Again, sorry for not getting on this sooner.

Alex

Thanks Alex ...I take it you

Thanks Alex ...I take it you worked out  there was an unhealthy pattern to this individual......I had a mailbox full.....some of the bricks missing out of that barrow 4sure.

Alex : If we hit the " Report

Alex : If we hit the " Report Comment " thingleby , what actually happens , do you get an Email , or do bumble-bees get released from a small cage within your head , or something ?

...... not that the Gummster would do that , ahem ... cough cough .... to dob in a fellow blogger . ..... but it did take 2 days of pinging on  the thingleby to get your attention .

Hi Gummy, Yes an email gets

Hi Gummy,

Yes an email gets sent through to me, although the 'reports' came through late at night for this thread it seems - meaning me asleep and in morning I already have a heap of emails of overnight news to get through.

Again, my apologies for not following it up sooner.

Cheers

Alex