NZ dollar overvalued, says Brash
"We're the only ones who think our dollar's overvalued. It floats on the open market and it is what it is."Featured comment
Former Reserve Bank governor Don Brash believes the New Zealand dollar is overvalued.
Speaking at the weekend on TV3’s The Nation programme, Dr Brash said that was is hurting exporters and those who compete with imports.
“But getting the New Zealand dollar down would actually have the effect of reducing the real wages of New Zealand workers.
“That’s how it works. It makes us more competitive by reducing real wages.”
Dr Brash said that the bank could intervene in the exchange market or it could cut interest rates and that would lead to higher inflation.
NZ First leader Winston Peters – also on the programme – said Dr Brash was talking “absolute bunkum”.
But Labour finance spokesman David Parker said that if the bank moved a little bit further away from the primacy of inflation did not mean “you're somehow going to give way on inflation”.
He said that was a false dichotomy.
“I'm not saying we should ignore inflation, no one's saying that.
“I'm just saying we shouldn’t give primacy to inflation targeting over other important aspects in management of the economy.
“Other countries aren’t. We're facing competitive devaluation abroad and we ignore it at our peril.”
But Dr Brash said New Zealand was the first central bank to introduce inflation targeting and now 23 countries had followed us.
“David Parker and Winston Peters both want to reduce the real wages of New Zealanders, because that’s what devaluation means.”