KEY POINTS:
Prime Minister John Key has defended comments he made that the New Zealand dollar could fall below 50 United States cents.
Prime ministers and their finance ministers usually avoid talking about the dollar's prospects, unless they intentionally want to talk its prospects up or down - as even the mention of it moving one way or the other can spook investors.
Speaking on the Agenda television programme yesterday, Mr Key appeared to slip into his old role as a money trader and happily mused on the New Zealand currency's fortunes.
He said he believed dollar could trade below US50c in the near future and below 80 Australian cents.
The dollar has been trading around the US52.5c to US53c mark, and above A80c.
Mr Key today defended his verbal foray back into the currency markets.
"It was hardly a major prediction," he said on TVNZ's Breakfast programme.
"It's a reflection of the fact interest rates drive the exchange rate. They were cut aggressively on Thursday and I think that is a good thing."
He said he did not think his comments would affect the exchange rate.
Mr Key said whenever the dollar went below US50c and above US70c, then one of the currencies was being undervalued or overvalued.
While a low rate made imports more expensive, he believed exporters would welcome the low valuation of the dollar in comparison to the record highs of recent years.
Worse ahead
Mr Key also warned of increasingly dire economic forecasts during his Agenda interview yesterday.
With news of 200 fresh redundancies at ANZ National magnifying the scale of the economic crisis he said it was important not to overreact.
But "nor should we underestimate the challenge we are facing", he told the programme.
He said the Governor-General's Speech from the Throne tomorrow would set out the new Government's agenda for the next three years and would focus on the economy, law and order, health and education.
Parliament would then go into urgency to pass some of the legislation in National's 100-day plan. The Cabinet was expected to sign off the legislation today, including the tax cuts, changes to KiwiSaver, bail laws, and National's promise to fund Herceptin for a 12-month course. Mr Key defended the decision to use urgency to pass the laws, saying National had campaigned on a 100-day agenda "and you're going to see us act and act pretty quickly".
He said it was too early to predict whether the worst was over, despite the Reserve Bank noting New Zealand was technically out of recession.
The ANZ National redundancies were evidence of the crisis flowing down into the economy and indicated the pre-Christmas opening of the books was expected to show a worsening of forecast debt levels, rising unemployment and larger deficits.
A preliminary Treasury update for the Government predicted unemployment to reach 5.7 per cent by March 2010 and deficits to reach $9 billion by 2013 - $1.7 billion more than the pre-election fiscal update.
- With NZPA
