English Says ‘Peashooter’ Stops N.Z. Fighting Currency WarTracy Withers
New Zealand’s government isn’t prepared to sell the nation’s currency to relieve pressure on exporters and manufacturers, Finance Minister Bill English said.
“We’re not willing to take the kind of huge risks involved in large scale speculation in the exchange rate with taxpayer dollars,” English told reporters in Wellington today. “To influence the exchange rate you need a couple of hundred billion U.S. in the bank so they take you seriously. We’d be out in the war zone with a peashooter.”
Central bank Governor Graeme Wheeler last month said the currency was overvalued and was undermining profitability for exporters and those who compete with cheaper imports. He kept New Zealand’s official cash rate at 2.5 percent, which makes the currency attractive to foreign investors when borrowing costs in Europe, the U.S. and Japan are near zero.
“Central banks around the world are easing very aggressively and that’s a backdrop that is very supportive of our currency,” said Mike Jones, currency strategist at Bank of New Zealand Ltd. in Wellington. “The government and the Reserve Bank are loathe to lean against that. They would have to sell an awful lot of Kiwi dollars to have an impact.”
The currency, nicknamed the Kiwi, has gained 1.5 percent this year after rising 6.6 percent in 2012. It bought 84.09 U.S. cents at 2:09 p.m. in Wellington.
New Zealand’s foreign reserves were NZ$21.4 billion ($18 billion) as at Dec. 31, according to government figures. The U.S. international reserve position at Feb. 1 was $152.3 billion, according to Treasury data.
New Zealand’s currency is near a 4 1/2 year high against the yen as Japanese Prime Minister Shinzo Abe seeks to revive his economy through easier monetary policy.
Group of Seven policy makers released a statement in London yesterday that was interpreted by some as signaling joint acceptance of the Japanese currency’s recent decline. Later its members offered contradictory interpretations of the group’s stance.
The confusion will keep the spotlight on the threat of a so-called international currency war and Japan’s push for monetary stimulus when finance ministers from the Group of 20 gather this weekend in Moscow.
At current levels the exchange rate “does represent a fundamental strength of New Zealand’s economy relative to the U.S.,” English said. “We have been a stronger economy than the U.S. and that has been a good thing.”
The government’s political opponents have called for adjustments to central bank policy and adoption of so-called quantitative easing to relieve pressure on the currency, citing developments in major global economies.
“We accept the exchange rate at current levels is putting pressure on exporters,” English said. “The exchange rate is largely driven by external factors we can’t influence such as the choices they are making in Europe, the U.S. and U.K. We’re not in those desperate circumstances.”
The government says its efforts to make the economy more competitive will mean companies are better able to make profits when the currency is high. English announced the annual budget will be delivered on May 16, adding it will contain more policies to speed the recovery and boost economic performance.