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BUSINESSDESK: Finance Minister Bill English has no truck with mounting calls for intervention by the Reserve Bank to bring down the high value of the New Zealand dollar.
Speaking to news media after the release of the new Policy Targets Agreement between the government and the RBNZ's newly appointed governor, Graeme Wheeler, Mr English says the kiwi dollar was high because New Zealand looks healthy compared to other developed world economies.
He was responding to suggestions from JBWere's New Zealand head of strategy, Bernard Doyle, and Labour finance spokesman David Parker that tools are available and should be used to ease the pain felt by exporters by the New Zealand dollar trading consistently above US80 cents for most of the last 15 months.
"I just don't agree with them," Mr English says. "There can be a misunderstanding about what's happening in the US", where the Federal Reserve has committed to printing money for as long as it takes to get the world's largest economy moving again.
"They are trying to get interest rates lower and are willing to do almost anything to get them lower. We're not in a position where we need to do that. We've got growth, we've got employment growth."
Statistics New Zealand announced stronger than expected growth in the three months to June to produce annual growth of 2.6% for the year, the strongest since 2007, before the global financial crisis.
US benchmark interest rates are at or close to zero, so quantitative easing – or printing money – is the only course available to the Fed. The Bank of Japan also announced a quantitative easing policy yesterday.
Mr Doyle suggested earlier this week that New Zealand's financial stability was at risk because of the way central banks around the world are "breaking all the rules" of orthodox monetary policy, which New Zealand continues to run a conventional regime.
"The driver of our exchange rate is as much to do with the relatively positive outlook for our economy compared to the US," Mr English says. "If the US economy policy has a positive effect, it may be that the exchange rate will drop back."
He says the new PTA's instruction to the RBNZ to concentrate on achieving 2% inflation, in the middle of the bank's 1% to 3% inflation target range, was intended only to help manage inflationary expectations.
It neither implied a desire for looser or tighter monetary policy on the part of the government.
While the PTA also covers the use of new macro-prudential tools, which would allow the RBNZ to "lean against" emerging credit bubbles such as caused the mid-2000's house price boom, such tools were effectively "fighting the last war".
"The new war is just growth," Mr English says. "Central banks are getting into some pretty innovative policies and pulling levers they've never pulled before."
However, New Zealand's only long-term answer to a high exchange rate was further efforts to improve competitiveness in all other aspects of the way businesses were run.
"We are focusing on the basic competitiveness in the New Zealand economy. There is no free lunch with the exchange rate," he says. "Even if we could get it down, it's impossible to sustain for any length of time."