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RBNZ Says Kiwi Currency May Remain Strong on Economic Outlook

New Zealand’s dollar, the best performing Group of 10 currency this year, may remain strong, reflecting the domestic growth outlook and optimism in global markets, according to the nation’s central bank.

“A period of further strength remains possible” for the currency, the Reserve Bank of New Zealand said in the six-monthly Financial Stability Report released in Wellington today. “This would particularly be the case if New Zealand’s relative growth outlook continued to be perceived as favorable despite the lower terms of trade.”

New Zealand’s currency has gained 6 percent this year and is among several that have advanced as global interest rates have fallen and policy makers have made progress in resolving Europe’s sovereign debt crisis, the central bank said. The economy grew 2.6 percent in the year ended June 30 and growth is forecast to accelerate, according to central bank forecasts published in September.

Governor Graeme Wheeler, the former World Bank co-managing director who took over from Alan Bollard in late September, kept the official cash rate at a record-low 2.5 percent in his first decision on interest rates Oct. 25, noting the high exchange rate was undermining export earnings. Today’s report doesn’t contain commentary on interest rates.

In an Oct. 26 speech, Wheeler said New Zealand doesn’t need quantitative easing, referring to central bank asset purchases. Nor did he favor cutting interest rates simply to target the exchange rate, citing evidence that past reductions had failed to quell currency demand.

New Zealand’s economy “has continued to grow modestly” and private sector credit has begun to grow again after being flat in recent years, the central bank said today.

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