Bank urges action over high kiwi

JAMES WEIR
Last updated 05:00 23/11/2013

Relevant offers

Money

Shoppers faint in Boxing Day bargains rush IRD collects $40 million after Kiwis dob in tax evaders Yuletide shopping picks up More families opt to stay at holiday parks Christmas shopping rush sees record spending Auckland council house valuations challenged Online sales growth slows New year mortgage war tipped Chrisco contracts challenged in Aust courts Online sales growth slows

The  exchange rate is over-valued and policies to encourage savings and increase "flexibility" in the economy are needed to ease pressure on the currency, the Reserve Bank says.

The dollar is at "historically high" levels against most trading partners, in part because of high export prices for dairy products and a relatively strong economy compared with other countries.

The kiwi was trading at US82.0 cents late yesterday, and peaked at more than US86c in April.

Many of the proposed solutions for fixing the high dollar, such as direct intervention or keeping interest rates low, would not have a lasting impact. That was because trading in the kiwi, averaging about $100 billion a day, "swamp any practical intervention capacity". Most of those currency trades are done overseas.

"At best, the Reserve Bank can attempt to smooth the peaks and troughs of the exchange rate," Reserve Bank assistant governor John McDermott said yesterday.

"We would like to see a lower exchange rate." He said a key reason for the over-valuation was the persistent savings and investment imbalance.

"Raising domestic savings relative to our investment needs appears to be the best way to sustainably lower New Zealand's real interest rates and take the pressure off the exchange rate."

There had been a persistent gap between savings and investment.

In the past 40 years, New Zealand had demanded more capital for housing and other assets than its domestic savings rate could finance. That meant ongoing reliance on foreign saving and capital inflows, he said.

Ad Feedback

- BusinessDay

Special offers

Featured Promotions

Sponsored Content