Manufacturers handling high kiwi 'better than expected'

Local manufacturers are dealing with the record-high exchange rate better than expected in their race to stay profitable as the strong kiwi erodes their returns, Finance Minister Bill English says.

BNZ-BusinessNZ's performance of manufacturing index today showed the sector grew for a fourth month in March in spite of a strong currency eating into export receipts and Mr English says they deserve credit for how well they have handled "the highest average exchange rate we've had since the Second World War".

He told the Wellington Employers Chamber of Commerce the sector is still growing despite the kiwi trading above 85 US cents. It recently traded near a 20-month high at 85.82 US cents and is close to post-float highs on the trade-weighted index at 78.99.

"I think we underestimate the changes in productivity and competitiveness that have gone on in New Zealand businesses," he said. "Our exporters are in a tough business getting competitive enough fast enough to stay profitable, and are doing a magnificent job."

Manufacturing was the only sector of the economy to shrink in the last three months of 2012 when gross domestic product grew at its fastest quarterly pace in three years, according to government figures.

Some exporters have been lobbying the government and Reserve Bank to take action to take the heat out of a currency that is being bolstered by massive central bank stimulus around the world.

Mr English scotched suggestions New Zealand can embark on a money printing programme like the Bank of Japan's "because it will effectively destroy the credibility of our economy".

"We have yet to see the consequences of the experiment going on."

The kiwi will eventually come down against its trading partners when central banks start raising interest rates, though that will be in a year or two, he says.

The trade-off for exporters struggling was that New Zealand has "the best buying power in 50 years. You can buy more stuff from The Warehouse than ever with your kiwi dollar".

(BusinessDesk)