RBNZ says no quick fix to bring down NZD

JAMES WEIR
Last updated 16:06 20/02/2013

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There are no quick fixes to bring down a "significantly overvalued" dollar, and the decline in manufacturing is much more than a simple exchange rate story, the Reserve Bank says.

Speaking to the Manufacturers and Exporters Association, central bank governor Graeme Wheeler said the dollar was well over-valued and that was a headwind for some manufacturers.

The dollar was trading around US84.1c today.

But there were no simple solutions for the Reserve Bank.

Wheeler said the bank "stands ready to intervene in the currency when circumstances are right" and to use the Official Cash Rate as required.

It was also investigating the use of macro-prudential tools, such as putting limits on bank loans for houses, which would help to support monetary policy.

While commentators have suggested a wide range of alternative policy responses to lower the New Zealand dollar, there were no quick fixes available to the Reserve Bank, he said.

"Our economic challenges are different from the US, euro area, and Japan, and quantitative easing would increase inflation, raise inflation expectations, stimulate asset prices, and lead eventually to higher interest rates," Wheeler said.

The manufacturing sector was not just being hit by the high dollar.

Factors such as globalisation, outsourcing and international supply chains, along with competition of low-cost producers and rising global demand for services, meant the relative importance of manufacturing had been declining in all but the poorest countries for the past 40 years.

New Zealand was no exception, he said.

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- BusinessDay.co.nz

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