Govt holds ace

The Opposition keeps telling the government to meddle with the exchange rate.

Trans Tasman points out the difficulty of doing that without causing other problems:

. . . Interest rates are at their lowest level in nearly 40 years, easing financial pressure on those with mortgages. The Govt holds an ace up its sleeve in the exchange-rate debate.

To critics who call for policies to lower the exchange rate, it can say “how would you do it: cut interest rates or raise them?”

Cuts in interest rates would increase inflationary pressure and push up house prices. Higher interest rates would attract even more speculative currency inflows, and lift the exchange rate higher. . .

Neither higher house prices nor higher interest rates would do anything to help make housing more affordable.

About these ads