Is The Dollar A Threat To The Economy?
August 21st, 2009
Reserve Bank governor Alan Bollard says the exchange rate is not helping the sustainability of future growth and if the easing in monetary conditions the bank forecast in June did not eventuate he ” would reassess policy settings,” shorthand for dropping interest rates. ASB chief economist Nick Tuffley says the absence of any mention of green shoots or upside risks from net migration and housing is a clear message the weakness of the export sector is a far greater risk.
However Westpac chief economist Brendan O’Donovan questions whether the stronger currency is a threat to the recovery. He says “often currencies are actually telling us something about the fundamentals, and it’s not obvious they’ve been wrong to date. If the market is overestimating the strength of the recovery, the NZ dollar is likely to fall of its own accord, and if the market is correctly anticipating the recovery, a stronger dollar won’t be enough to cancel it out.”
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