Quantitative easing isn't required in New Zealand despite calls for the nation to follow major economies in printing money, says new Reserve Bank governor Graeme Wheeler. The kiwi dollar dropped on his comments, marking the second straight day he has moved the currency.
"The economy is growing at an annual rate of around 2 per cent and the Reserve Bank has scope to lower interest rates if needed," Wheeler said in a speech to the Admirals' Breakfast Club in Auckland.
Wheeler kept the official cash rate at 2.5 per cent in his first review of monetary policy yesterday and made no mention of the possibility of cutting the OCR further from a record low.
The kiwi dollar dropped to 81.91 US cents after notes of his speech were released this morning, having jumped above 82 cents after his statement yesterday.
Wheeler also ruled out intervention in currency markets by the central bank, a seldom-used tool to try to manipulate the kiwi dollar in the wake of any untoward moves. Such a move "is unlikely to have a sustainable effect on the New Zealand dollar," he said.
"The bank will remain vigilant on its criteria for intervention, and will be prepared to intervene if all its conditions are met," he said.
The central bank would prefer to see the kiwi dollar lower "provided it can be achieved without damaging price and financial stability," he said. "Ultimately it is the relative rates of return between New Zealand and the rest of the world that explains the strength of the New Zealand dollar."
New Zealand 10-year government bonds are yielding about 3.62 per cent, or 179 basis points more than the equivalent US Treasuries. The OCR at 2.5 per cent compares to the Federal Reserve's target of near zero.
"In order to achieve a sustained reduction in the New Zealand dollar, it would be necessary to alter the overall level and pattern of saving and investment in the economy," Wheeler said. "In particular, it will be necessary to tackle our addiction of depending on foreign savings to finance our consumption and investment."
"Monetary policy by itself cannot deliver quick fixes to achieve and sustain more rapid economic growth, lower unemployment, or maintain a lower exchange rate," Wheeler said. "Other policies are central for achieving these outcomes but when they are applied monetary policy can be supportive of them."