“It’s probably still a bit overvalued,” English, who is also New Zealand’s deputy prime minister, said in an interview with Bloomberg Television’s Francine Lacqua and Guy Johnson in London yesterday. “It’s the kind of adjustment we’ve been expecting for some time, but it’s taken longer for the U.S. economy to get into shape.”
Since peaking at above 86 U.S. cents on April 11, the New Zealand dollar has dropped more than 10 percent against the greenback amid signs of an improving U.S. economy. The kiwi fell 0.3 percent to a 12-month low of 77.20 U.S. cents at 3 p.m. in Wellington today. The currency’s strength has impeded New Zealand’s economic recovery by reducing export returns. The country is the world’s biggest exporter of dairy products.
English said the South Pacific nation of 4.4 million people can’t expect to take on the $4 trillion-a-day currency market because it has little firepower, even though the central bank’s governor, Graeme Wheeler, announced in May that he was intervening to weaken the kiwi.
“Our Reserve Bank has limited capacity to intervene,” English said, likening it to a “peashooter in a war zone.”
English said New Zealand’s focus on competitiveness will pay off in the long run, in spite of the forces of the international currency market.
“We just regard it as something we can’t control and just stick to a strong focus of improving our own competitiveness,” he said in a separate interview earlier yesterday. “In the last four or five years that’s been hard work for New Zealand but in the long run it’s going to pay off.”
Economic growth slowed to 0.3 percent in the first quarter from 1.5 percent in the previous three months after the worst drought in 30 years curbed farm output.
The Reserve Bank projects annual growth will accelerate from 2.4 percent in the first quarter to 3.6 percent by the second half of 2014, led by the NZ$40 billion ($31 billion) rebuild in the South Island city of Christchurch, where houses, roads, shops and commercial buildings were destroyed by earthquakes in 2010-11. The most devastating quake in February 2011 killed 185 people.
English said gains in the housing market are “a bit overdone,” partly due to strong demand for homes after the earthquake, and they would eventually slow.
“The key issue is supply that doesn’t respond fast enough to demand,” he told Bloomberg Television. “We should expect over the next few years for the housing market to slow down a bit.”
With inflation forecast to remain below the central bank’s 1 percent to 3 percent midpoint until the second quarter of 2015, Wheeler kept the official cash rate this month at a record-low 2.5 percent and said he expected to leave borrowing costs unchanged until next year.
The government projects it will return to surplus in the 2014-15 fiscal year, aided by an asset-sales program. It wants to raise between NZ$5 billion and NZ$7 billion by selling partial stakes in at least four state-owned enterprises.
In the first sale in May, shares in energy company Mighty River Power Ltd. floated at NZ$2.50. They traded as low as NZ$2.20 this week.
Contract negotiations are continuing between Meridian and Rio Tinto Group Ltd., the majority owner of the nation’s only aluminum smelter, which used about 13 percent of national power output last year. If Rio closed the plant, that might result in a sustained drop in power prices, Mighty River said in its offer documents last month.
English said Rio Tinto’s contractual obligations meant that the smelter has to remain open for another six years and the effects of the closure are not something the government was “overly concerned” about.
To contact the editor responsible for this story: Craig Stirling at email@example.com