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Wheeler Wants Weaker Kiwi Without Disrupting Inflation Efforts
Submitted by Tradervox 1 on Fri, 26/10/2012 - 10:47
Tradervox.com (Dublin) - The new Reserve Bank of New Zealand Governor Graeme Wheeler signaled in his inaugural address the he wants a weaker New Zealand dollar but without having to resort to unorthodox policies that might disrupt the efforts being made to contain inflation in the country. In the statement, Wheeler noted that the central bank wants to see a weaker NZ dollar without hurting price and financial stability in the country. Despite the growing concerns in Europe, China, Japan and US, coupled with the internal difficulties to contain unemployment, inflation and the struggling growth in New Zealand, the kiwi has managed to outperform many currencies, increasing by 5.3 percent this year.
According to Mark Smith, a senior economist in Wellington at ANZ Bank New Zealand Ltd, it is clear that the strong kiwi is giving the RBNZ a headache, noting that the new governor is trying to be realistic about the impact that domestic monetary policy has on the foreign exchange rate. He noted that the RBNZ is not considering rate cuts to ease pressure on the currency. The New Zealand currency, which rose to 82.43 US cents yesterday, the strongest in three weeks, fell after the comments by the Governor, closing the day at 81.77 US cents.
In his inaugural statement today, Wheeler ruled out the possibility of quantitative easing and noted that rate cuts might fail to achieve the required results. The Reserve Bank of New Zealand retained its cash rate at 2.5 percent. The strong kiwi is hurting manufacturer’s exports, limiting investment in tourism and it is curbing companies’ earnings according to the statement. The situation has been compounded by reports released today showing that the nation’s trade deficit was the widest since 2009 in the third quarter. Wheeler also indicated that the central bank is ready to sell its dollars, but more will have to be done in order to make sure that the timing will right.
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