This is worth a read: https://t.co/gjARfKQ6JB
20/06/2017 9:58 PM
RT @PositiveMoneyUK: ...and it’s almost impossible to reduce our debts without causing a recession - Welcome to the debt trap! https://t.co…
20/06/2017 9:49 PM
@Parker_Banking The pirates are in the accendency - on the pirate scale there is no difference between Trump and Pu… https://t.co/XbxmE9OJao
17/06/2017 1:11 PM
RT @PositiveMoneyUK: Why are House Prices So High? https://t.co/kYNWqTc6kP
16/06/2017 3:57 PM
@Omearanz Tax incentives point away from productive investments - asset price inflation is not productive of itself… https://t.co/zOCXPEj93U
15/06/2017 5:00 PM
@Parker_Banking People without income and assets cannot be consumers - superfluous to economy - superfluous to soci… https://t.co/EHIOqdcNXH
15/06/2017 12:18 PM
@Parker_Banking Full of rah rah platitudes: happened before no worries.Then machines replaced muscle/debt low, now… https://t.co/SMvdIfmpi1
15/06/2017 12:15 PM
RT @OECDeconomy: Lifting New Zealand’s game on productivity https://t.co/bwoqMQ8VqS https://t.co/HCBgXNoCeD
15/06/2017 12:04 PM
RT @OECDeconomy: The downsides of New Zealand’s inflated house prices https://t.co/SgFKfoQS7N https://t.co/cwZvFyG8to
15/06/2017 12:02 PM
@Parker_Banking You and a lot of other mate - keep at it the numbers are growing.
11/06/2017 4:00 PM
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10
JUN 11

What will it take for a monetary policy shake up?




The New Zealand dollar has reached a post float high against the US dollar and has tracked up against almost all major currencies over the past few weeks. This has reinforced the need for Government policy reform, but there is still a reluctance to take action from the Government and the Reserve Bank.

The correlation between the exchange rate and tradable sector performance is clear from the graph below. The tradable sector has notably fallen away from about 2003 as the exchange rate has remained persistently overvalued over that time.



For exporters outside of commodities, those adding value to commodity exports and those making differentiated products, these currency levels are completely unsustainable.

There seems to be a view that a favourable cross rate with Australia is enough, but simplifying export markets is hardly something to be promoting. The recent down turn in the Australian economy is evidence that relying on one market is inherently risky. The Bureau of Statistics reported that national gross domestic product in Australia had fallen by 1.2 percent in the first quarter of 2011, steeper even than the fall during the worst of the global financial crisis. There are also concerns about a collapse in the Australian housing market which would hurt consumer demand.

The other view promoted by the Government and officials is that high commodity prices lifting our terms of trade go some way to justifying a higher currency. This ignores the fact that capital flows speculating on the Kiwi dollar are 100s of times greater than bilateral trade flows – trade in the real economy is simply not material. Furthermore, an economy that barely missed a double-dip recession and has been hit by earthquakes does not justify a high currency. The only reason currency pressures persist is that other countries are taking action to lower their exchange rates, whether through quantitative easing in the United States and the United Kingdom, capital controls in Canada and Brazil or direct currency management in China and Singapore, while our policy makers sit on their hands.

Without export growth New Zealand will borrow more, sell more assets and disinvest in the productive economy; all trends that reduce our capacity to sustain a trade surplus and erode our ability to service our international debt. Any credible plan to rebalance our economy must deal with those polices that persistently overvalue our currency.
 


tags: monetary policy, exchange rate, reserve bank, capital controls, differentiated products
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