High exchange rate not all bad


The New Zealand Manufacturers and Exporters Association is calling for action on the exchange rate, saying it has cost exporters $10.4 billion over the past three and a half years.

In February 2009 the NZ Dollar bottomed out at 52.3 on the Trade Weighted Index (TWI), but since then currency manipulation overseas and inaction in New Zealand have seen the NZ Dollar TWI rise to 72.9 in August. For every one percent the currency rises it costs New Zealand exporters approximately $200 million on an annual basis. Between February 2009 and August this year the NZ Dollar rose by 20.6 percent, and it has averaged 14.8 percent above the February level over the last three and a half years.

NZMEA Chief Executive John Walley says, “It is no wonder that we are seeing job losses in coal and aluminium with a statistic like this.  To put this in perspective New Zealand’s total annual merchandise exports are around $45 billion, so this is a hugely significant number compared to the margin on those sales.”

“Claims that nothing can be done to manage the exchange rate impact are only true in the context of our chosen macroeconomic framework – there are alternatives.  Witness the international evidence from countries such as Switzerland, the United Kingdom and the United States, that efforts to control exchange rates can and do work.” . . .

There is no doubt that a high exchange makes it difficult for exporters because it makes their goods and services more expensive.

But does the NZMEA’s calculations take into account the high exchange rate also makes imports cheaper and some of those – like fuel and machinery – have helped reduce costs of production.

That might not have offset the lower returns as a result of the higher dollar but does the $10.4 billion taken any account of it at all?

Various factors impact on the exchange rate. One of these is debt which is why the government is committed to returning to surplus as soon as possible.

But the main reason our exchange rate is so high is because the United States’ dollar is so low we are far to small to have an impact on that.

Labour thinks we could start playing with currency again. Someone should tell ’em they’re dreamin’.

What’s “right”value for $NZ?


The Manufacturers and Exporters Association says the New Zealand dollar is too high and wants the Reserve Bank to intervene.

Chief executive John Walley says there seems to be an attitude of  helplessness, which must change.

“It’s been overvalued now for a long period, and exporters are starting  to get at the end of their tether,” says  Mr Walley.

Mr Walley says there are many options open to the Reserve Bank, and  all he asks is for them to take some form of action.

The bank’s main tool is interest rates which are very low and have been for some time.

It has the ability to buy and sell currency but our economy is so small it would be a minnow swimming with sharks.

Even if it could do much, what would the “right” value for the dollar be?

A high dollar does make exports more expensive but it also makes imports cheaper.

Farmers mutter about the high dollar too but what we lose on the price for our produce we gain to some extent from lower costs for imports like fuel, fertiliser and machinery.

The two main reasons our dollar is relatively high at the moment is the weakness of other currencies and the demand for our produce.

We can’t do anything about the former and should be celebrating the latter because that’s what we need for economic growth.

Rather than looking to the Reserve Bank for solutions, manufacturers and exporters should be looking at their own operations to improve competitiveness by increasing productivity, improving quality and/or cutting costs.

Having a floating currency isn’t without its problems but  it’ still better than the alternatives.

Exporters Irked by Nat’s Monetary Policy Stance


The NZ Manufacturers and Exporters Association is not impressed by National’s support for the current monetary policy.

The party’s defence of the current system failed to acknowledge the damage the policy had caused to New Zealand’s tradeable sector, association chief executive John Walley said.

The approach used interest rates dictated by the Reserve Bank’s official cash rate to curb demand and influence inflation.

That approach had seen exports dropping from 33% of GDP in 2001 to 22% in 2007.

“What we are seeing at the moment is increasing fuel and commodity prices driving inflation which in turn is holding up interest rates and exchange rates.

“These forces are unlikely to stop any time soon so we need to break the link between inflation and the exchange rate,” he said.

He’s right about the problems but I’m not convinced playing politics with monetary policy is the solution.

Associate Finance Minister Trevor Mallard last week announced that the Government was open to looking at alternative monetary policy settings.

National finance spokesman Bill English said now was not the time to start tinkering with a monetary framework.

The Reserve Bank recognised the effect that international oil and food prices were having and the central bank was not going to strangle the economy because of imported inflation.

“It has been well recognised by government officials and commentators that increases in government spending, poor quality spending and increases in government charges are also stoking inflation domestically,” Mr English said.

“Trevor Mallard would be well advised to focus on these inflation factors, rather than signalling a drastic rethink on monetary policy,” Mr English said.

Quite. I have never been able to understand Labour’s belief that their spending of public money is not inflationary but allowing us to keep more of what we earn would be.

Mr Walley hoped National was making a typical election-year response.

Unless policy changes were made, all that could be expected was more of the same as the trade balance deteriorated and the economic situation worsened, he said.

A more responsible approach to the spending of public money might make a difference without the need to make monetary policy a party political issue.

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