KEY POINTS:
Political pressure is building on the Government to do something about the soaring dollar but Prime Minister Helen Clark is warning that exporters will have to learn to trade with a higher currency in the long term.
Helen Clark and Finance Minister Michael Cullen are under attack from
National and New Zealand First over the relentless rise of the dollar, which broke through the US81c level for a period yesterday.
National is blaming the currency's rise on the Government's spending programme, which it claims is pushing up interest rates and, in turn, supporting the dollar's rise.
NZ First is pressuring Dr Cullen to step in and change the Reserve Bank's focus so it does not continue to raise interest rates, further hurting struggling exporters.
But after last week drawing attention to the fact the Government had the option to step into the fray under section 12 of the Reserve Bank Act, statements from the Beehive now appear to be focusing more on how much the soaring dollar is out of its control.
Dr Cullen said yesterday that the story of the past couple of days was the continuing decline of the US dollar.
"We haven't changed much against currencies like the Australian and so on over that period of time and nothing we can do can affect the US dollar in coming down," he said.
He still would not rule out invoking section 12, although Helen Clark has pointed out the Finance Minister had never said he was actively considering it.
She chose to quote a bank economist when facing questions about the dollar - saying it was normal for countries "doing well" to experience higher exchange rates.
In the long term, the challenge was to be able to trade profitably at a higher dollar level.
Helen Clark also pointed to historically high dairy prices, an economy that had been growing for several years, low unemployment and sound Government finances as reasons behind the high currency and interest rates.
"In these circumstances, it's not unusual when the US dollar is low to have a high currency," she said.
The dollar has actually not been rising solely against a weak greenback - it has made a bigger gain during the past year against the Japanese yen. It is also up against the euro, aussie and pound.
National leader John Key seized on the currency worries to cast doubt on Dr Cullen's economic management.
He said the Finance Minister had put the country into "the mess" of having one of the highest interest rates in the Western world as well as an exchange rate at a post-float high.
"The only people paying for the mess are homeowners, borrowers and exporters," Mr Key said.
NZ First leader Winston Peters upped the ante too, saying the Finance Minister should not have waited until the dollar got to US80c to act.
- Additional reporting NZPA
