English Says New Zealand Companies Prefer Weaker Kiwi Dollarby and
Says exporters would prefer exchange rate a few cents lower
Tough drought may bolster case for lower RBNZ rates: English
The New Zealand dollar’s six percent gain since September has hurt sentiment among exporters, who would prefer an exchange rate several cents lower, Finance Minister Bill English said.
The currency’s climb to as high as 68.26 U.S. cents has taken it out of the comfort zone for many businesses and “pushed them off some of the confidence they might have had when it was low 60s,” English said in an interview in Wellington late Tuesday. “Talking to businesses who are exposed to it, something in the mid to low 60s seems to work for them, as long as it’s stable.”
The kiwi rallied more than a cent after Reserve Bank Governor Graeme Wheeler said Dec. 10 he expects to achieve his inflation target without cutting interest rates any further. Wheeler, who has returned his benchmark to a record low, left open the option of more monetary easing if the economic outlook weakens.
Asked if he thought there was a case for lower rates, English said: “If you have a bit of a tough drought, there may be.” He said the “overwhelming feedback” from companies was they prefer the exchange rate “to be relatively stable, wherever it is.”
The kiwi fell immediately after the comments were published to as low as 67.41 cents, before recovering to trade at 67.69 cents as of 4:48 p.m. in Wellington.
Expectations for price swings in the New Zealand dollar climbed this quarter to the highest relative to major developed peers since 2011. Three-month implied volatility for the kiwi has averaged 12.73 percent this year, up from 9.26 percent in 2014.
The currency will drop almost 7 percent by the end of March, to 63 U.S. cents, according to the median forecast of more than 40 analysts surveyed by Bloomberg.
Wheeler last week said a case could be made for more infrastructure spending in Auckland as a way of lifting economic activity and helping stoke inflation, which would potentially reduce pressure on the central bank to lower rates.
“I can’t remember the last time the Reserve Bank asked the government to spend more in New Zealand to help them with monetary policy, usually it’s the opposite,” English said.
The government yesterday said it will increase capital spending in next year’s budget to deliver key projects and meet growing demand for services as immigration boosts the population. The announcement was not a response to the central bank’s comments because the program of investments has been in the planning for many years, and the decision to proceed was made months ago, English said.
Still, “if the economy was going pretty strongly the government would be a bit careful about adding to that pressure,” he said. “So the fact that its been flatter probably means we’ve been more interested in pursuing these projects.”