Labour backs more action on NZ dollar

Labour Party finance spokesman David Cunliffe. Photo / Mark Mitchell

The Reserve Bank should more aggressively address volatility in the New Zealand dollar, which may in turn "disincentivise" the speculators who drive up the currency's value through rampant buying, says Labour Party finance spokesman David Cunliffe.

As the election campaign heats up, the Opposition is promising a wide-ranging approach to controlling the exchange rate, which hit a post-float record of US88.43c against the greenback in early August and was trading at US79.5c at Friday's close.

The National-led Government, on the other hand, appears loath to directly intervene in the currency situation .

The latest TIN100 report on the country's 100 biggest technology exporters found those companies' combined revenues increased 5 per cent to $7 billion this year.

But the growth would have been 2 percentage points higher if not for the kiwi's strength against the greenback, the report said.

Cunliffe said Labour would encourage the Reserve Bank to buy or sell New Zealand dollars when it believed the currency was too strong or too weak.

In addition to taking the "top off the peaks" in the exchange rate, he said such intervention would also send a strong signal to currency speculators.

"At the moment [the kiwi] is one of the most highly traded currencies in the world and we think imposing a little bit of policy risk on the trading community is probably a good idea to try and disincentivise those flows."

In its monetary policy statement Labour said the 15 per cent capital gains tax it aimed to introduce would moderate interest rates and therefore reduce demand for the New Zealand dollar, which in turn drove up its value, the statement said.

It also said the objectives of the Reserve Bank should be broadened to recognise that the health of the export sector, economic prosperity and employment were just as important as controlling inflation.

"Our goal is to stabilise to some extent - although we realise it will only be a partial effect - the volatility in the exchange rate and to work towards a lower average level over time," Cunliffe said.

Labour also wants the interests of exporters to be represented on the Reserve Bank's board.

A spokesman for Finance Minister Bill English said the best way of ensuring a competitive exchange rate was to minimise borrowing and pressure on interest rates.

"That's why National is focused on returning to surplus by 2014/15 and keeping net Crown debt below 30 per cent of GDP," he said, adding that there was international evidence that intervention by central banks to control exchange rates was expensive for taxpayers and ineffective long-term.

Cunliffe said the Finance Minister had his head stuck in the sand.

"Bill English has told the House that New Zealand has the world's best monetary policy - in fact it has one of the most extreme policies," he said. "It is very unusual for a small economy to be as open as ours is."

Greens co-leader Russel Norman said that in addition to pushing for a capital gains tax, excluding the family home, the party would encourage the Reserve Bank to intervene to bring the exchange rate down.

"Various other central banks [such as those in Switzerland and Japan] have made very strong statements that they won't let their currencies rise too high and they'll enter the market," Norman said.

Act leader Don Brash, who was Governor of the Reserve Bank from 1988 to 2002, said his party would support reduced Government borrowing and spending, which would in turn help to reduce the official cash rate (OCR).

"There's no doubt that if the OCR were 1.25 per cent, rather than 2.5 per cent, the exchange rate would be lower," Brash said.