KEY POINTS:
The New Zealand dollar fell below the psychologically key US70c level to a five-month low today.
It has now plunged 9 per cent in less than a week.
It was hit by another round of selling on increasing concerns over credit sector problems.
The kiwi fell to a
low of US69.92c just after midday, its lowest since March 19 and down more than one per cent from a session high of around US70.85c.
The currency has fallen around 14 per cent since its 22 year post float high of US81.1c on July 24 on credit woes and expectations that the country's interest rates have peaked.
However, Finance Minister Michael Cullen said appeared content with the kiwi's plunge, telling a business gathering the kiwi was still over-valued..
"The dollar is still well above a position justified by medium-term fundamentals and has been for a long time," he told the business group.
Dr Cullen and the Reserve Bank had frequently said over the past two years that the NZ dollar is unjustifiably and exceptionally high given economic fundamentals.
The central bank's hawkish monetary policy, which sent interest rates to record levels, has been cited as a key factor in the currency's rise.
The RBNZ is known to have intervened at least three times since early June to sell the kiwi dollar in an attempt to slow its rise.
While other central banks have moved to ease liquidity, there is no suggestion the Reserve Bank will move to ease its tight stance. A bank spokesman said yesterday it was "business as usual".
Dr Cullen said the monetary policy framework needed to be looked at seriously to see whether it could be made more effective at "curing the inflation disease without killing the patient".
A parliamentary committee is currently looking into the operation of monetary policy to see if there are any additional tools the central bank can use to control inflation without pushing up the exchange rate.
The RBNZ is required to keep inflation between 1 per cent and 3 per cent on average over the medium term and does this mainly through raising and lowering its official cash rate.
So far this year it has raised rates four times, but last month said it did not expect to raise further because of signs of slowing demand.
All 17 economists in a Reuters poll expect the RBNZ to leave its rate at 8.25 per cent well into next year.
Dr Cullen said the government had been running a tight fiscal policy to help contain inflation and ease pressure on monetary policy.
"Early indications are that the cash surplus for the last financial year is likely to be higher than forecast at budget time," he said.
The official budget forecast is for a surplus of $6.57 billion for the year to June 30.
Dr Cullen repeated he would outline the scope for personal income tax cuts in next year's budget.
He has consistently ruled out personal tax cuts saying he did not want to fuel inflation, but in his May budget cut the corporate rate to 30 per cent from 33 per cent.
- REUTERS, NZPA