New Zealand central bank Governor Graeme Wheeler said he sees no opportunity at the moment to intervene in the currency market to counter a “very strong” exchange rate.
“If we see opportunities to make a difference and create uncertainty about the future direction of the exchange rate in traders’ minds, then we would be prepared to intervene,” he said in an interview with Radio New Zealand. Asked if he sees that at the moment, he said: “not at the moment.”
Wheeler is concerned that the New Zealand dollar, which rose to a five-month high this week, will hurt exports and slow the economic recovery. Last month he said interest rates would stay at a record low for the rest of 2013 and he introduced limits on low-deposit home loans to curb property inflation rather than raising borrowing costs.
“We have a very strong exchange rate,” Wheeler said. Increasing interest rates “would put upward pressure on the exchange rate and damage our traded goods sector. We’re quite concerned about that risk.”
New Zealand’s dollar fell to 83.38 U.S. cents at 11:35 a.m. in Wellington from 83.50 cents this morning and 85.44 cents on Oct. 22.
Mike Jones, a currency strategist at Bank of New Zealand Ltd. in Wellington, said the kiwi was weaker today on Wheeler’s comment that the mortgage lending curbs may be starting to work.
“That may reduce the need for rate hikes down the track,” Jones said. “It’s seeing the ground crumble under the kiwi a little bit.”
House-price inflation is running at the fastest pace since early 2008, fueled by a housing shortage in Auckland and Christchurch. The RBNZ on Oct. 1 introduced limits on the volume of home loans banks can make when deposits are less than 20 percent of a property’s value. Asked if the restrictions are working, Wheeler said it is too early to tell “but the annecdotes suggest that they are.”
“We will be having to put up interest rates some time next year,” Wheeler said. “To the extent that we can slow down house-price inflation and transferance of demand pressures through to consumer prices, then that will give us some scope potentially to delay the increase in interest rates, and hopefully we won’t have to raise them by quite so much.”
The official cash rate has been held at a record-low 2.5 percent since March 2011.
Wheeler, in his first media interview since taking the helm of the RBNZ in September last year, said the central bank has limited resources and must wait for the right circumstances to sell the currency to have any impact. He said he is also conscious that it is taxpayer money the central bank would be putting at risk.
Wheeler said in May the RBNZ had been intervening in the currency to curb its gains. It was the first time the central bank confirmed intervention since June 2007.
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