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Rebalance won’t happen while exchange rate constrains inflation

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Capital controls rather than the exchange rate must be used to restrain inflation say the New Zealand Manufacturers and Exporters Association (NZMEA). There are a number of options available to the Reserve Bank to restrict inflationary pressures through capital controls. These measures do not reduce returns and investment in the tradable sector.

NZMEA Chief Executive John Walley says, “Right now most developed countries are manipulating their currencies downwards in an attempt to spark an export led recovery. The notion that we would push ours artificially high to restrict inflation when the Government claims to be rebalancing the economy is ridiculous.”

“We need to learn a lesson from Australia. Their previously strong recovery is being stunted by a restrictively high dollar. Our currency is not far behind.”

“The Reserve Bank has shown with its introduction of the Core Funding Ratio that the world doesn’t end when a new tool is introduced. The RBNZ now needs to add a minimum retail deposit funded percentage and a loan to value ratio to this package.”

“All the while the ‘disinterested’ bank economists are talking up interest rates to pump their margins and lift the dollar, lowering their foreign debt exposure. The real economy is again the whipping boy of problems elsewhere in our economy.”

“We cannot expect exporters to lead an economic recovery when the biggest determinant of their success, the exchange rate, is allowed to be pushed higher and higher. The Government and the Reserve Bank need to devise a strategy that actually meets New Zealand’s real economic needs.”

tags: exchange rate, inflation, capital controls, reserve bank


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