Tension caused by high exchange rates is likely to be a hot topic of discussion at the Asia-Pacific Economic Co-operation (Apec) leaders meeting in Japan this week, says Prime Minister John Key.He reiterated today his position against moves here towards c
Tension caused by high exchange rates is likely to be a hot topic of discussion at the Asia-Pacific Economic Co-operation (Apec) leaders meeting in Japan this week, says Prime Minister John Key.
He reiterated today his position against moves here towards controlling the exchange rate, despite other countries having gone down that path.
Opposition leader Phil Goff said the dollar was at such a high level that it was causing serious damage to the manufacturing industry.
The Reserve Bank had independent power to intervene in the currency market to bring the dollar down, and while stopping short of saying it should do so, he said the Government needed to address the issue.
"Clearly the dollar is at such a high level that it is helping to destroy the manufacturing industry in this country at the moment.
"We have to take that seriously and I would expect the Government, with its army of bureaucrats, to have some answers," Mr Goff said. "So far we've seen none."
Mr Key said the weakness of the United States economy and measures being taken there to depreciate the US dollar was driving the high exchange rate here, and it was an issue not unique to New Zealand.
Taking steps to control the exchange rate was an option for the Reserve Bank, but there were costs, he said. "Those imbalances have to show up somewhere else in your economy -- either through more pressure on interest rates, higher inflation, less access to capital."
He said intervention was a nice idea. "It makes people feel good, but it doesn't work."
On the positive side, a higher exchange rate equated to lower fuel prices, no concerns about import inflation and little pressure for the Reserve Bank to lift interest rates.
Mr Key said rising exchange rates were being felt widely and the issue was likely to be canvassed at Apec, as it was at the recent East Asia Summit.
"It's clearly an area of great tension, we all understand that, but like everyone, it's difficult to find a solution to it."
An obvious goal at Apec was to further the Trans-Pacific Partnership (TPP), which aims to integrate the economies of the Asia-Pacific region, he said.
Nine countries were engaged in wanting to progress the TPP. "So progress from my point of view would be that we are on track for a successful conclusion within a reachable time-frame, and we are hoping that will be the case -- that we'll have a sense of that progress when the leaders meet in Yokohama."
Mr Key said discussions with Japan's Prime Minister Yukio Hatoyama at the East Asia Summit gave him an indication Japan was starting to put a greater emphasis on increased trade links.
Mr Goff said he had focused on the TPP when he was trade minister and considered it was the vehicle that would drive the free trade agenda in the Asia-Pacific region, but pointed out that Apec had in the past failed to deliver on trade goals.
