Exchange Rate Needs Attention

The exchange rate

hit a two-year high on the Trade Weighted Index ( TWI) in the first week of February. That led the New Zealand Manufacturers and Exporters Association (NZMEA) to state that this country’s consistently overvalued exchange rate continues to be an issue for the competitiveness of manufacturers and the wider tradable sector.

“We need to investigate ways to bring it back to a sustainable level over time,” says NZMEA Chief Executive Dieter Adam. “The exchange rate hit [that] two-year high on the TWI and while it has dropped back less than a cent since, it remains at a level that damages the competitiveness of our manufacturers and tradable sector.

“This is not a new issue – our exchange rate has been consistently overvalued over the last decade, the average of which has been over 10 percent higher than the previous two decades in TWI terms. This does not, however, mean we should accept the current level as inevitable. We need to see some fresh thinking on how to create conditions that can give our economy a more sustainable exchange rate over time, from both the Reserve Bank of New Zealand (RBNZ) and Government.

“A competitive and fairly valued exchange rate is a key component of ensuring our productive manufacturing and exporting sectors can grow over time, bringing quality jobs and much needed export income. The failure to make ground on the Government’s target of improving exports to 40 percent of GDP has no doubt been hampered by the consistent overvaluation.

“In terms of the RBNZ’s OCR decision tomorrow, we believe holding the current rate is the right move. While we are starting to see signs of an inflation uptick, moving rates up prematurely, as we saw in 2014, would add additional pressure onto our exchange rate. The exchange rate is currently around four percent above what the RBNZ forecast for the upcoming March quarter.”