Prime Minister John Key says central bank intervention in currency markets has not been successful in changing the direction a currency is moving in, but does not think the Reserve Bank Act needs to be changed, as guidelines for New Zealand’s central bank are more specialised than for its international counterparts practicing intervention policies.
This morning in comments to the New Zealand Seafood Industry conference, Key said there was no evidence currency intervention could succeed or whether it had worked internationally.
The New Zealand dollar hit a record high of 82.6 US cents last week, with some industry groups calling for the Reserve Bank to intervene in currency markets to try and stem the dollar's rise. The Reserve Bank's currency guidelines say it can intervene in the markets to take the top off a peak, or the bottom off a trough in the dollar when it considers the currency is about to change direction.
Key, a former currency trader, has said he thought the rise in the Kiwi against the US dollar was largely down to an inherent weakness in the US dollar.
Talking to media this afternoon in Parliament, Key said the Reserve Bank's currency objectives were different than other central banks which were running fuller intervention policies.
Asked whether he thought the Reserve Bank’s previous interventions had been unsuccessful, Key replied:
“That’s a matter for the Reserve Bank, you’ll need to talk to them. But if you look at the historical position of banks that have intervened in currency markets, from Japan down, it has been highly unsuccessful.”
Asked whether the Reserve Bank Act should therefore be changed to prohibit intervention, Key said he was “comfortable with the rules that they have in place".
"It’s at their discretion, they have a set of criteria they have to meet, that’s for the Reserve Bank Governor (Alan Bollard), I’m comfortable with that," Key said.
“But my overall view is if anyone believes we can seriously alter the direction of an exchange rate simply by intervention then in my view they’re misguided.”
"I think in terms of their (Reserve Bank) guidelines they’re really somewhat different. Their guidelines are in relation to taking the tops off what they see as extreme position, or in the cases of stability where there may be a case for intervention," Key said.
"But in terms of changing the overall direction, I don’t think it’s likely to be successful.”
5 Comments
Given Treasury are now forecasting a current account deficit in 2015 of 6.9 % of GDP
= about $ 14 B and rising which means another $ 50 B on our foreign debt by 2015 I would have thought that 45 consecutive years of deficits would be sufficient proof that current policy settings are not and are never going to return us to a surplus which is required by definition to reduce our debt accumulation.
Hong Kong, Singapore Taiwan Korea Brazil and China all manage their currencies so I simply don't agree with Key we have no options - of course we do !
Right now we are right on track for a default or restructuring of our foreign debt as the only possible outcome from these projections.
With our terms of trade at an all time high - and world interest rates at an all time low - it just isn't going to get any better - and almost certain to get worse yet still we bleed.
With half our debt due to roll inside 12 months we are very exposed to the inevitable interest rate hikes that will come - the only issue is when.
As the savings working group said - we have exhausted all soft options - now we have to export more, import less and save more.
Borrowed money on borrowed time and all on JK's watch !
The facts are these desired outcomes can not be achieved with current FX rates settings - so we have to change the policy settings.
That isn't going to happen - so it's Greece here we come !
Not Keen...? Geeesus H...not keen...? the understatement of the year...he'd have to change his name to Judas I. or Benadict .A. to get away with being keen.
He's a bloody money trader for cripes sake......... what a nonsense to expect any other response out of this pip.click junkie.
Of course. For Key doing nothing is always the best option, that way he doesn't run the risk of offending any of the vested interests to which he is pandering . What he does need to explain though is that if he is comfortable with policy settings that give us a structural current account deficit, how are we going to make up the difference. Which is it John, borrow more or sell more assets? Probably both.
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