Friday, 19 August 2022
Meet the JournalistsPremiumAucklandWellingtonCanterbury/South Island
CrimePoliticsHealthEducationEnvironment and ClimateNZ Herald FocusData journalismKāhu, Māori ContentPropertyWeather
Small BusinessOpinionPersonal FinanceEconomyBusiness TravelCapital Markets
Politics
Premium SportRugbyCricketRacingNetballBoxingLeagueFootballSuper RugbyAthleticsBasketballMotorsportTennisCyclingGolfAmerican SportsHockeyUFC
NZH Local FocusThe Northern AdvocateThe Northland AgeThe AucklanderWaikato HeraldBay of Plenty TimesHawke's Bay TodayRotorua Daily PostWhanganui ChronicleStratford PressManawatu GuardianKapiti NewsHorowhenua ChronicleTe Awamutu Courier
Covid-19
Te Rito
Te Rito
OneRoof PropertyCommercial Property
Open JusticeVideoPodcastsTechnologyWorldOpinion
SpyTVMoviesBooksMusicCultureSideswipeCompetitions
Fashion & BeautyFood & DrinkRoyalsRelationshipsWellbeingPets & AnimalsVivaCanvasEat WellCompetitionsRestaurants & Menus
New Zealand TravelAustralia TravelInternational Travel
Our Green FutureRuralOneRoof Property
Career AdviceCorporate News
Driven MotoringPhotos
SudokuCodecrackerCrosswordsWordsearchDaily quizzes
Classifieds
KaitaiaWhangareiDargavilleAucklandThamesTaurangaHamiltonWhakataneRotoruaTokoroaTe KuitiTaumarunuiTaupoGisborneNew PlymouthNapierHastingsDannevirkeWhanganuiPalmerston NorthLevinParaparaumuMastertonWellingtonMotuekaNelsonBlenheimWestportReeftonKaikouraGreymouthHokitikaChristchurchAshburtonTimaruWanakaOamaruQueenstownDunedinGoreInvercargill
NZ HeraldThe Northern AdvocateThe Northland AgeThe AucklanderWaikato HeraldBay Of Plenty TimesRotorua Daily PostHawke's Bay TodayWhanganui ChronicleThe Stratford PressManawatu GuardianKapiti NewsHorowhenua ChronicleTe Awamutu CourierVivaEat WellOneRoofDriven MotoringThe CountryPhoto SalesNZ Herald InsightsWatchMeGrabOneiHeart RadioRestaurant Hub

Advertisement

Advertise with NZME.
Business

Sharp dollar fall would need response, says Reserve Bank

13 Mar, 2013 08:20 PM3 minutes to read
The kiwi dollar has climbed to levels that don't match the underlying economic conditions, says the Reserve Bank. Photo / NZPA

The kiwi dollar has climbed to levels that don't match the underlying economic conditions, says the Reserve Bank. Photo / NZPA

BusinessDesk

A sharp drop in an over-valued New Zealand dollar that created inflationary pressure would need a monetary policy response, according to the Reserve Bank.

The Reserve Bank has revised up its projections for the local currency on a trade-weighted basis as the kiwi remains in favour against the backdrop of increasingly upbeat global financial markets and a flood of money from major central banks expanding their balance sheets through quantitative easing.

The Reserve Bank sees the currency staying above 75 on the TWI until the June quarter next year, having previously seen it falling below 73 by the end of this year.

The TWI dropped to 75.73 after the bank's statement today from 76.21 immediately before it was released.

Advertisement

Advertise with NZME.

Read the Reserve Bank's latest Monetary Policy Statement here.

The strength of the currency has kept a lid on tradable inflation, with the consumers price index is sitting at 0.9 per cent, below the central bank's target band of between 1 per cent and 3 per cent, and giving governor Graeme Wheeler room to keep the official cash rate at a record-low 2.5 per cent.

"Exchange rates do eventually adjust in line with underlying economic conditions, often at a rapid pace," the bank said in its March monetary policy statement. "If the exchange rate were to decline rapidly, this would add to inflationary pressures, and monetary policy would need to respond."

The kiwi dollar has climbed to levels that don't match the underlying economic conditions, and those periods can be protracted, the bank said. Some of that strength has been attributed to the central bank's firmer policy stance, it said.

"Though the New Zealand dollar also reflects high terms of trade and recent improvements in market sentiment, the relative performance and outlook of the domestic economy have contributed to New Zealand interest rates being higher than in most trading partners and the New Zealand dollar remaining persistently elevated," the bank said.

The work the currency is doing to keep rates low also holds inflation risks if it stokes greater momentum in the housing market, the bank said. Auckland's bubbling property market, where there's a lack of supply to meet increasing demand, is seen as a growing risk to the nation's financial stability.

Last month, Wheeler told the New Zealand Manufacturers' and Exporters' Association the kiwi dollar is significantly over-valued, and he "will intervene when the circumstances are right."

Related articles

Business

Wall St down on Italy EU vote fears

25 Feb 06:50 PM
Business

When does secrecy become counter productive

25 Feb 10:25 PM
New Zealand

Minimum wage to increase by 25c

26 Feb 02:18 AM
Business

Faster economy tipped

26 Feb 04:30 PM

The Reserve Bank can intervene in currency markets when the kiwi is at exceptional levels that aren't justified, is consistent with monetary policy, and when it will work.

The high dollar has become an increasingly heated political issue, with an Opposition party inquiry into what it has called a crisis in New Zealand manufacturing, the Labour Party calling for monetary policy to target more than just low inflation and the Green Party arguing the case for quantitative easing, or printing money.

Advertisement

Advertise with NZME.

Advertisement

Advertise with NZME.

Latest from Business

Premium
Business

The former bankers taking a bite out of the $110 billion business lending market

18 Aug 05:00 PM
Premium
Business

Stock Takes: Fund manager performance fees take a hit

18 Aug 05:00 PM
Premium
Business

Matthew Hooton: It's not easy being Green - what Labour, Nats can learn from Shaw battle

18 Aug 05:00 PM
Premium
Business

Pratt & Whitney: Why the flight to sustainability is a long one

18 Aug 05:00 PM
Premium
Business

Stress on the flight deck: The pilots who suffered most during pandemic

18 Aug 05:45 AM

Most Popular

Premium
Sideswipe: Like a scarecrow, for meat robbers?
Entertainment

Sideswipe: Like a scarecrow, for meat robbers?

18 Aug 05:00 PM
Premium
The former bankers taking a bite out of the $110 billion business lending market
Business

The former bankers taking a bite out of the $110 billion business lending market

18 Aug 05:00 PM
Premium
Julie Chapman: Pets caught in violent break-ups
New Zealand

Julie Chapman: Pets caught in violent break-ups

18 Aug 05:00 PM

Advertisement

Advertise with NZME.
About NZMEHelp & SupportContact UsSubscribe to NZ HeraldHouse Rules
Manage Your Print SubscriptionNZ Herald E-EditionAdvertise with NZMEBook Your AdPrivacy Policy
Terms of UseCompetition Terms & ConditionsSubscriptions Terms & Conditions
© Copyright 2022 NZME Publishing Limited
TOP