Ex­change Rate Needs At­ten­tion

DEMM Engineering & Manufacturing - - NEWS -

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.”

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