Reserve Bank and Government shirk responsibilities

15 September

The Government and the Reserve Bank must take ownership of the overvalued exchange rate say the New Zealand Manufacturers and Exporters Association (NZMEA). It is not acceptable just to decry the effects of a high New Zealand dollar. Other countries are taking action and it is long past time for our policy makers to the same.

NZMEA Chief Executive John Walley says, “There was some talk at this morning’s Monetary Policy Statement about the Swiss intervention to reduce their currency, whether non-tradable inflation would be a better target for the Reserve Bank and on additional tools that could be used. Unfortunately we see no action and the resulting decline in the tradable sector.”

“The Swiss said what they would do and got on with it; to date it has worked. A firm commitment from the Reserve Bank to target domestic inflation would immediately see the dollar fall. Currency traders know that another tool would have to be used as interest rates don’t work against domestic inflation.”

“Reserve Bank Governor Alan Bollard freely admits that a high exchange rate is keeping inflation down – this has been happening since 2005 and it is no surprise that the same point marked the beginning of the tradable sector’s decline.”

“The Staitistics New Zealand Survey of Manufacturing released this week shows the same trend; added value exports to the United States and Europe are becoming less and less viable.”

“A future relying on raw material exports is a low growth and low wage future. The Government and the Reserve Bank need to work together to find a solution.”

ENDS

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