By Alex Tarrant
The Reserve Bank says the New Zealand dollar is stronger than it wants to see, and has hiked its projections for the currency over the next few years.
In its December Quarter Monetary Policy Statement, the Reserve Bank projected the Trade Weighted Index - showing the New Zealand dollar against a basket of trading partner currencies - would maintain its level above 71 through its projection period to the March 2015 quarter.
The December MPS showed a big shift from September projections, which showed the TWI falling below 70 midway through 2014.
The currency rose by almost half a US cent on Thursday morning following the release of the Reserve Bank's latest forecasts.
Reserve Bank Governor Graeme Wheeler said the exchange rate was stronger than the Reserve Bank wanted.
“We would like to see the exchange rate lower, if we could achieve it without threatening the inflation outlook and also financial stability," Wheeler told media at a press conference at the Reserve Bank on Thursday morning.
“If you look back over a long sweep of history, there’s a close relationship with the terms of trade. But we’ve seen the terms of trade decline now, for five quarters - commodity prices are starting to pick up, and they’ve picked up over the last five months or so. But you see the exchange rate remaining very strong, and doing considerable damage to the traded goods sector, particularly manufacturing and also import-substitution," Wheeler said.
The high currency had been driven a lot by injections of global liquidity – that is, quantitative easing – from the major economies.
“There seems to be a close relationship between the pick-up in overseas share markets – world share indices, particularly in the US – and a pick-up, in turn, in the exchange rate pressures faced by countries that have reasonably sound monetary policy, good growth prospects, and reasonable prospects in terms of commodity price outlooks," Wheeler said.
Asked if the Reserve Bank had looked at ways to mitigate the effects of global liquidity injections, Wheeler replied:
“In terms of the liquidity injections that are coming from overseas, those sorts of pressures, there’s not a lot directly that we can do about that.
“The issue is, what can we do to try and alleviate exchange rate pressures? There are circumstances in which the central bank could intervene, but we’ve yet to find situations which meet all our ‘traffic lights,’ if you like, at this point.
“Other governments have looked at capital controls. We don’t think that’s appropriate for New Zealand," Wheeler said.
“So in essence, it’s something that a lot of countries that have better growth prospects and have rising commodity price outlooks and reasonably sound macro policy, they’re facing upward pressure on the exchange rates And it is hurting their traded goods sectors in many of their economies," he said.
7 Comments
The RBNZ started doing Financial Stability reports back in 2004. A very large question has to be asked over the effectiveness of these reports. Did the RBNZ see the GFC coming? Did the RBNZ see the high exchange rate emerging? Did the RBNZ think the high household debt would have implications on the economy? Basically the RBNZ watches the banks and hopes that it all works out OK.....Do hope the RBNZ gets a good shareholder dividend from the Fletcher shares they hold.....a rather sneaky little investment by a Crown entity getting a lovely Government handout with managing the EQC repairs.
I don't think the RBNZ financial stability reports assist in any way or function. They just tell us what we already know.
One way to look at the high NZD is that we have had a wage rise (if you have a job)....more purchasing power.
Use them to buy things of value. While we can.
Cheers
But, but, but ....
You can't be serious. TSY is relying on on the NZD falling to USD 0.65 (return to surplus and all that). And MPI believes TSY. Which is why MPI has a positive outlook for NZ dairying (to be fair they have a negative outlook if the NZD remains high but they consider that a remote possibility):
http://www.mpi.govt.nz/Default.aspx?TabId=126&id=1356
And why numerous irrigation projects are proceeding based on a reasonably high dairy payout dependent on a steadily falling NZD:
http://www.hbrc.govt.nz/HBRC-Documents/HBRC%20Document%20Library/Ruatani...
This information from the RBNZ suggests that the front right wheel of the economy is now held by only one wheel nut, and that is coming loose. And this is SH 50 late in the afternoon - in the next 20 minutes you will pass 6-10 Fonterra tanker units travelling in the other direction.
Take care.
So we're just going to sit by and watch industries destroyed and people unnecessarily unemployed; for the benefit of workers in China, Japan, Germany and other surplus countries that do not have such a passive view.
RBNZ has "financial reports" galore to tell them of the dangers present and ahead . Unfortunately it chooses to do nothing as not all the "traffic lights" are align....maybe the lights from the ambulance is a better guide ???
Or perhaps it is choosing to follow Confucious advise : "When rape is inevitable, lie back and enjoy it "
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