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N.Z.’s English Calls Exchange Rate ‘Impediment’ to Export Growth

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Bill English, New Zealand's finance and deputy prime ministe
Bill English, New Zealand's finance and deputy prime minister. Photographer: Mark Coote/Bloomberg

Feb. 4 (Bloomberg) -- New Zealand’s finance minister called a stronger local dollar an “impediment” to export growth and said it’s difficult to see a case in which the currency advances further this year.

“What we need to do is ensure that government behavior isn’t putting upward pressure on interest or exchange rates,” Bill English, who also serves as deputy prime minister, said in an interview in Wellington yesterday. Looking at prospects for the currency known as the kiwi in 2011, he said “it’s hard to see the general pressures that would push it up.”

Traders yesterday scaled back bets on the Reserve Bank of New Zealand to raise interest rates this year after a government report showed fewer jobs than forecast were generated in the fourth quarter. The one-year swap rate, a fixed payment made to receive floating rates, which is sensitive to interest-rate expectations, tumbled the most seven weeks, to 3.22 percent, compared with the RBNZ’s benchmark official cash rate of 3 percent.

New Zealand’s dollar has in the past half decade averaged a rate that’s effectively the strongest in three decades, English said. It’s traded at a mean of 69.30 U.S. cents over the past five years, compared with 57.19 cents the previous five.

After his remarks were published, the currency declined, trading at 77.09 cents as of 6 p.m. in Sydney yesterday. The kiwi rose about 8 percent last year after a gain of almost 25 percent in 2009.

RBNZ Pressure

English said his government’s steps to shrink a fiscal deficit should reduce the need for monetary tightening by the central bank and ease pressure on the exchange rate.

“We are encouraged by the Reserve Bank governor who said a number of times that if fiscal policy carried more of the load then monetary policy wouldn’t have to carry as much,” English said his office, in a wing of the New Zealand parliament known as the beehive for its appearance.

The jobless rate increased to 6.8 percent from 6.4 percent three months earlier, raising the risk the economy shrank for a second straight quarter in October to December, a government report showed yesterday. The median estimate of 10 economists surveyed by Bloomberg News was for a 6.5 percent rate.

“We can’t see a tightening before the September policy statement meeting and remain alert for the prospect that the next move in the cash rate could be down,” Darren Gibbs, chief New Zealand economist at Deutsche Bank AG in Auckland, said in an e-mailed note after the employment report. “Based on the indicators available to date, we think that the economy probably contracted 0.4 percent in the fourth quarter.”

Recession Chances

English said it will be up to “statisticians” to decide whether there was a recession. Growth has been hurt by losses in construction and retailing jobs as households start to boost saving, he said.

Warehouse Group Ltd., the nation’s largest discount retailer, last month forecast a decline in first-half profit after sales dropped.

“Consumers clearly remain even more focused than we predicted on strengthening household balance sheets,” Warehouse Chief Executive Officer Ian Morrice said in a statement.

The move to boost household savings and shrink the public deficit will help the economy shift away from reliance on consumers and the government, said English, 49, a former chief of the ruling party when it was in opposition.

Prime Minister John Key last week pledged to cut new spending this year, helping return the budget to surplus a year earlier than previously forecast. The government expects to achieve a surplus in the year ending June 30, 2015, Key said.

Bollard’s Call

RBNZ Governor Alan Bollard told reporters on Jan. 28 that a faster elimination of the deficit “means less stimulus in the economy. And all other things being equal, which they never are, it means that one would be able to delay monetary policy tightening longer than would otherwise have been the case.”

New Zealand’s government has weathered the economic deterioration, with its popularity at 55 percent compared with the main opposition Labour Party at 29 percent, according to a Roy Morgan Research poll of 1,800 voters last month. Key earlier this week called a general election for Nov. 26, saying the campaign will be about which party has a plan for jobs and income growth.

English indicated the biggest dangers for New Zealand include a slowdown in China, house-price bubble bursting in Australia or a spreading in the European sovereign-debt crisis.

Commodity ‘Spike’

“Commodity prices are starting to look like a spike,” he added. “If they can go up as sharply as they have in the last few months, they can come down.”

Milk prices are soaring at a 7 percent monthly pace on top of an already “high” level, English said. Dairy products make up almost a quarter of the nation’s exports and Auckland-based Fonterra Cooperative Group Ltd. is the world’s largest exporter of the goods. English also cited crude oil costs approaching $100 a barrel.

Commenting on wool, English signaled he wouldn’t oppose higher prices. Asked about an effort by farmers to organize a cartel, English welcomed the initiative while adding that the government won’t directly help it.

“In a number of our main export sectors -- being dairy, meat and wool -- there are tense but constructive discussions going on about how to commit capital in the right way to take advantage of the positive opportunities,” said English, who took office in November 2008. “It’s great that they are working on that stuff. We encourage it, but we’re not going to direct them.”

To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

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