Finance Minister welcomes NZ$ fall as reducing headwind for exporters; says RBNZ will be happy to see it continuing to fall; sees not much inflation for consumers

By Bernard Hickey

Finance Minister Bill English has welcomed the sharp fall in the New Zealand dollar in the last week, arguing it helped reduce the headwinds for exporters and was unlikely to push up consumer price inflation much because New Zealand's economy was competitive.

English was making his first comments about the currency since Reserve Bank Governor Graeme Wheeler's strong warning about the high currency last week and subsequent confirmation on Monday of intervention in August to sell NZ$521 million worth of New Zealand dollars.

English, who would have been briefed by the Reserve Bank about the intervention, said the Reserve Bank was likely to want to see the New Zealand dollar continue to fall.

"The Reserve Bank is probably happy to see the dollar continue to drop," English told Radio New Zealand's Morning Report on Tuesday.

English welcomed the currency's fall from over 81 USc last week to 77.6 USc overnight and that the fall had been a long time coming.

"The US economy is now being seen to recover. Interest rates in the US are likely to rise. That will close the gap a bit between New Zealand and American interest rates. That was always going to be a shift that was going realign the New Zealand dollar. We thought that was going to happen a couple of years ago. It didn't, but if you wait long enough then eventually it does," English said.

"What has been quite a strong headwind for the rebalancing of the New Zealand economy -- that is a high dollar that has made it difficult for quite a lot of our export industries to do well -- is a headwind that is reducing in strength," English said.

"For instance, the tourism industry could look to more profits and success if the dollar is in the mid 70s than when it's in the high 80s," he said, although he noted the high currency had been helpful for businesses investing in new plant and equipment.

"On the other hand we've had in recent times a lot of business investment based on the fact that exporters could afford to buy new plant and equipment because the New Zealand dollar was so high," he said.

Consumer price pressure?

English acknowledged the currency's fall may increase import prices for consumers, but he downplayed the extent of any rises.

"It's going to tend to put pressure on prices in New Zealand for anything that's imported. We've yet to see how that flows through. It seems to me an element of what the Reserve Bank was doing was taking an opportunity when price pressure in the economy has been quite low, lower than expected," English said.

"That tells you there hasn't been the pressure on consumer prices that we might have expected and we'll see what happens as the dollar drops," he said.

"I suspect we've got a very competitive economy. You are not going to see all the effects of the dropping dollar flow through to consumer prices."

English said the economy had been quite resilient to a high currency and would now become resilient to a lower New Zealand dollar.

The temperature of porridge

English was then asked about Prime Minister John Key's comments on Monday that a fair value for the New Zealand dollar, which he described as the 'Goldilocks' level, was around 65 USc.

English declined to give his own view of where the currency should be, but noted Key's views were worth listening to.

"I recall two or three years ago he said it would go to 88 USc. Everyone thought that was rubbish, but actually that's where it got to." English said. 

"Last time he made a call that was out of line with the consensus, he turned out to be right."

'John Key can speculate'

English denied that the Government was specifying to the Reserve Bank where the currency should be, or that it was encroaching on its independence.

He said the Reserve Bank had acted independently.

"The Government doesn't have a view. Individuals in the Government can speculate about where it gets to," English said.