The New Zealand Manufacturers and Exporters Association (NZMEA) says the Reserve Bank needs to do more to lower the New Zealand dollar other than just saying a high currency is unwelcome.
Reserve Bank Governor Alan Bollard said yesterday the unwelcome high dollar could dampen an economic recovery. However, his remark followed a speech a few weeks ago which included comments interpreted as green-lighting the rising currency as New Zealand's terms of trade strengthened. See Bernard Hickey's article from April 12 on Bollard's green light speech.
NZMEA CEO John Walley said the high New Zealand dollar was not justified as the country had barely survived a double-dip recession and had been hit by a devastating earthquake. Walley has called in the past for currency controls in order to reduce speculative trade in the New Zealand dollar, which is one of the most freely floating currency in the world.
“It is worth noting that the annual bilateral trade is worth about as much as a single day’s trade in the New Zealand dollar – exchange rates have little to do with trade in the real economy,” Walley said in a media release.
“An economy that barely missed a double-dip recession and has been hit by an earthquake does not justify a high currency. The only reason currency pressures persist is that other countries are taking action to lower their exchange rates, whether through quantitative easing in the United States and the United Kingdom, capital controls in Canada and Brazil or direct currency management in China and Singapore, while our policy makers sit on their hands,” Walley said.
The Reserve Bank must do better than comments like 'the elevated level of the New Zealand dollar is unwelcome,' Walley said.
"The Government and its officials cannot claim to support an export led recovery while resisting reform of monetary and fiscal policy that continues to exacerbate the single biggest problem impacting exporters," Wally said.
"There are a number of exporters who cannot survive if the dollar stays around the eighty US cent mark for a sustained period of time. These are exporters we badly need producing value added, differentiated products that have a sustainable future at sensible long run average exchange rates,” he said.
“These are the firms that should be leading the export recovery, but our macroeconomic policy is driving them out of business instead.”
“There has been some talk that rising commodity prices justify a rise in the dollar,” Walley said.
“Most of New Zealand’s exports are not the unprocessed commodities that might fundamentally justify higher exchange rates. Export growth in the processed primary and manufacturing sectors require investment in product development, new plant and equipment to improve capacity. A high and volatile currency will increase the uncertainty of return, pushing back against export focused investment,” he said.
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12 Comments
Dear Mr Walley
Not only did the RBNZ governor think the NZD/USD pair rise unwelcome he joined the fray and bought NZD 525 million back in March when the price averaged 0.7415.
Details released yesterday and one month out of date can be viewed here.
Not that this action can be viewed as an outright winning trade. Just a belated partial short covering action of a then outstanding NZD ~2.0bn short position undertaken as part of an ill-fated currency intervention/smooting programme.initiated over the June 2007 to June 2008 period.
At it's peak the short position was NZD ~4.0bn. The plan was to sell the highs ~80-81 and buy back at the lows ~39-40. Only a naive inexperienced civil servant would contemplate such a utopia. Now we all pay. would would contemplate suc
Stephen - was it the case that their plan was to buy back at circ 39-40? It'd have been a good deal for them if that level had been reached, however, the fact that it didn't pan out this way isn't a justification for abstaining from intervention. Back then they met the Act's conservative criteria for intervention, helped reduce the level and they have not made a material loss. The intervention was successful it appears. It's no secret that now RB views things differently, under the current RBA and criteria, and so it's no great shock that they would have felt justifed buying back in March.
However, if the Act was changed to allow a less orthordox monetary policy maybe they could be as effective as Singapore's MAS with intervention. Suppose for instance RB could specifically use a range of volume-ratio based tools to control inflation, and particularly have more effect on non-tradeables, our OCR could be lower and dollar less attractive, see:
http://www.johnwalley.co.nz/147-price_or_volume.aspx
Maybe a strategy for intervention would be a combination of well timed selling, reducing OCR and increasing these ratios, do you think that would make the Kiwi less attractive and allow RB more opportunity to effectively intervene, perhaps in a similar way to MAS? (Noting that MAS do not disclose their band, which also helps make their dollar less attractive.) What do you think? Cheers, Les. www.mea.org.nzMethinks that Mr Walley is too preoccupied with the Royal Wedding in England to have noticed that the $Kiwi is at a very low rate against our main trading partner , $A ! .....
.... I reckon he is having too much fun with those excited village girls in Kaikoura ......... And I can understand that .
John - I understand the pain of some manufacturing exporters, but you offer no solutions other than to say someone should fix it. You well know that the NZD/USD isn't so much higher as the USD is painfully, and rightfully, very low. What do you expect the RBNZ or NZ Govt to do about a US currency crisis (not yet but it will become one) ? This is a problem that most other countries are having to grapple with and they have found no magic solution either - please offer us one
John - I understand the pain of some manufacturing exporters, but you offer no solutions other than to say someone should fix it. You well know that the NZD/USD isn't so much higher as the USD is painfully, and rightfully, very low. What do you expect the RBNZ or NZ Govt to do about a US currency crisis (not yet but it will become one) ? This is a problem that most other countries are having to grapple with and they have found no magic solution either - please offer us one
Hi Guys – I am not going to reiterate the discussions of the past here, you can read (and comment) on them all at www.johnwalley.co.nzor www.realeconomy.co.nz– correcting our warped policy settings needs much more than any single policy change.
The implementation of monetary policy and the existing fiscal settings are poison to the development of differentiated products for export – fix that or our economy will simply return ever lower living standards.
It can all be done, I do my best to reference the exemplars from time to time and these days even Bernard helps so please don’t claim it can’t be done, it can, we chose not to try.
What wedding was that again Wolly?
This country needs a culture change first, at least on a political/ media platform, before your demands can be fulfilled.
John, Les and others think more profoundly - not just for exporters.
The implementation of demands from NZMEA to the government of allocating infrastructure orders in Transport/ Energy and Telecommunication to NZcompanies the NZworkforce and of monetary policy and the existing fiscal settings are poison to the development of differentiated products for export – fix that or our economy will simply not only lose decent job opportunities, but return to a ever lower living standards.
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