NZ Manufacturers and Exporters Association attacks Reserve Bank's 'soft' stance on high NZ dollar

The New Zealand Manufacturers and Exporters Association (NZMEA) says the Reserve Bank needs to do more to lower the New Zealand dollar other than just saying a high currency is unwelcome.

Reserve Bank Governor Alan Bollard said yesterday the unwelcome high dollar could dampen an economic recovery. However, his remark followed a speech a few weeks ago which included comments interpreted as green-lighting the rising currency as New Zealand's terms of trade strengthened. See Bernard Hickey's article from April 12 on Bollard's green light speech.

NZMEA CEO John Walley said the high New Zealand dollar was not justified as the country had barely survived a double-dip recession and had been hit by a devastating earthquake. Walley has called in the past for currency controls in order to reduce speculative trade in the New Zealand dollar, which is one of the most freely floating currency in the world.

“It is worth noting that the annual bilateral trade is worth about as much as a single day’s trade in the New Zealand dollar – exchange rates have little to do with trade in the real economy,” Walley said in a media release.

“An economy that barely missed a double-dip recession and has been hit by an earthquake does not justify a high currency.  The only reason currency pressures persist is that other countries are taking action to lower their exchange rates, whether through quantitative easing in the United States and the United Kingdom, capital controls in Canada and Brazil or direct currency management in China and Singapore, while our policy makers sit on their hands,” Walley said.

The Reserve Bank must do better than comments like 'the elevated level of the New Zealand dollar is unwelcome,' Walley said.

"The Government and its officials cannot claim to support an export led recovery while resisting reform of monetary and fiscal policy that continues to exacerbate the single biggest problem impacting exporters," Wally said.

"There are a number of exporters who cannot survive if the dollar stays around the eighty US cent mark for a sustained period of time. These are exporters we badly need producing value added, differentiated products that have a sustainable future at sensible long run average exchange rates,” he said.

“These are the firms that should be leading the export recovery, but our macroeconomic policy is driving them out of business instead.”

“There has been some talk that rising commodity prices justify a rise in the dollar,” Walley said. 

“Most of New Zealand’s exports are not the unprocessed commodities that might fundamentally justify higher exchange rates.  Export growth in the processed primary and manufacturing sectors require investment in product development, new plant and equipment to improve capacity.  A high and volatile currency will increase the uncertainty of return, pushing back against export focused investment,” he said.