English Says New Zealand Has Few Tools to Curb Currency Gains
New Zealand Finance Minister Bill English said there is little the government can do to counter gains by the nation’s currency, which are curbing the profits of local exporters.
“We can’t do anything about the dollar in the short term,” English said in an interview on Radio New Zealand today. The government’s strategy is based around helping exporters cope by reducing costs locally.
New Zealand’s dollar has surged 34 percent against its U.S. counterpart in the past six months, making it the second-best performing major currency after South Africa’s rand. English wants exports, which make up 30 percent of the economy, to lead a recovery from the worst recession in three decades.
“We need to tilt this economy away from growth dependent on government spending and household borrowing,” he said. “We need an export-led recovery.”
English said the New Zealand export sector has shrunk in the past five years as it faced a prolonged period of high exchange rates. The currency rose this week to a 12-month high of 70.88 U.S. cents. It hit a 23-year high of 82.13 cents in March 2008. It bought 70.05 cents at 8:55 a.m. in Wellington trading.
“That really has ground in on our export sector, and that’s why it’s urgent we influence the things we can,” English said.
The currency’s 30-year average is in the mid-60 cents level and that is putting pressure on exports, English said.
Reduce Costs
“If they are pushing uphill in our overseas markets, we need to make sure costs in New Zealand are as low as we can get them,” he said. “That’s why the government has an extensive regulatory review program to try to make the New Zealand business environment as friendly as we can.”
A second tool is the central bank’s ability to sell the currency, albeit within limited resources, English said.
“The Reserve Bank has an ability to lean on the dollar,” he said. “That’s up to the governor in terms of his independence. That’s one tool and he has used that before.”
Reserve Bank Governor Alan Bollard said last week the currency may eventually decline as global investors focus on New Zealand’s weak growth outlook and the risk of a widening current account deficit.
Filed under: finance by Wolf