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90 seconds at 9 am: Bollard's currency warnings ignored as NZ$ jumps back to 82.5 USc; ECB, BoE, BoC hold rates at record 'money printing' lows; Brazil cuts to drag Real down
Here's my summary of the key news overnight in 90 seconds at 9 am, including news the New Zealand dollar has risen almost a cent to 82.5 USc despite the warnings from Reserve Bank Governor Alan Bollard yesterday that a high currency was damaging New Zealand's export sector.
Bollard warned after releasing the bank's March Monetary Policy Statement (MPS) he may even cut the Official Cash Rate if the New Zealand dollar rose so much it reduced inflationary expectations. See more here in Alex Tarrant's article from yesterday's MPS news conference.
Just to repeat for those who missed it, here were Bollard's key comments:
New Zealand and a number of other small open economies were having their currencies driven quite high by a number of features, principally from offshore due to a considerable a amount of monetary stimulus from the major central banks around the world, Bollard told media at a press conference on Thursday morning.
“When that all happens we do worry about the potential for competitive monetary stimulus. It certainly would be a disappointment if we got this far through the global financial crisis without an outbreak of competitive trade barriers, as we have worried about, only to run into competitive monetary stimulus," Bollard said.
“We all know that there's a number of countries around the world who are quite concerned about this at the minute. They’re ones with their own currencies, it’s not just New Zealand. I’ll put in the same boat Australia, Canada, some of the Scandinavians, some of the Latin Americans, and some of the Eastern Europeans as well," he said.
“But, at least from our point of view, we do see that being driven at least in its recent manifestations primarily from interernational pressures, rather than from New Zealand pressures. In that sense it’s limited what New Zealand can hope to do about it. Of course, were we to see [a] strengthening New Zealand dollar, and were we to see that strengthen to a point where it was actually bringing down our future expectations of inflation, then we always still have the prospect of reducing the Official Cash Rate in response to that,” Bollard said.
As if to reinforce Bollard's worries about competitive monetary easings, the European Central Bank, the Bank of England and the Bank of Canada all held rates at record lows overnight and the Bank of England confirmed it is printing 325 million pounds.
The ECB held its key rate at 1% and President Mario Draghi said the European economy was showing signs of stabilisation, even though Eurozone GDP was expected to contract in 2012, before growing at more than 1% in 2013. However, Draghi said inflation would be above the ECB's target of 2% this year. He also layed the groundwork for stopping the money dumps of the last three months that have calmed markets down. See more here at Bloomberg.
The Bank of England held its key rate at 0.5% and the Bank of Canada held its rate at 1%, although it noted it was concerned about how rising oil prices might affect the economy.
Elsewhere, Brazil's central bank cut its key rate overnight by 75 basis points to 9.75% as it battles to stop the real currency from rising. This was more than the markets had expected.
All this confirmation of easy money conditions and a calmer situation in Greece helped stocks rise overnight around 1%, which in turn boosted the New Zealand dollar. See more here at Bloomberg.
More than 75% of Greece's creditors are now expected to sign up to a debt restructure, easing fears of a forced restructure that may have triggered billions of dollars of Credit Defaul Swap contracts. See more here at Reuters.
Closer to home, Australia's economy continues to struggle. There were 15,400 jobs lost in February, which was worse than economists expectations for 5,000 extra jobs. See more here at Bloomberg.