KEY POINTS:
Economist Gareth Morgan believes the Reserve Bank will move on interest rates twice within the next quarter.
The kiwi dollar is trading at around the US74c, breaking records set over two years ago. Morgan said the Reserve Bank has no choice but to raise rates, as the economy has run too hot for too long, and the central bank now has to make up for lost time.
He said if the government really wanted to quieten the economy down, the last thing it should be doing now is pouring money into roads, health services, and infrastructure - generating full employment and excess demand.
He is convinced the probability of a housing market crash is rising by the month, and said a government dereliction of duty in policy setting is firmly to blame.
As the currency scales new highs, the volume of concern from the export sector grows.
Rob Davison of Meat and Wool New Zealand said it is going to be severely damaging at the farm gate. He said clearly it is going to eat into export returns, and while some companies may have forward cover to protect them in the short term, businesses will feel the difference over the coming weeks.
Federated Farmers spokesman Keith Kelly said many farmers are already suffering, as the price of a lamb has dropped $15 this season alone - when predictions were for them to rise by seven to eight dollars. He said farmers are now only getting cost price for their animals.
He said the greatest impact will be felt by young farmers starting out in the industry, who have not yet got built up reserves to carry them through hard times. "Banks are starting to ask farmers where the next payment is coming from", he added.
Kelly wants the government to have a long hard look at its own spending, saying the 47 per cent increase in crown expenses has to be reined in. He said the Resource Management Act, ACC costs, rates, and the Holidays Act are all hurting farmers, especially when costs such as fuel are rising.
But Keith Kelly says the industry also needs to look at its own outgoings, and find ways of cutting down the number of processes from farm gate to supermarket shelf.
National's finance spokesman Bill English also attributes the blowout to what he calls 'relentless' government spending, which he claims is doing enormous damage.
Mr English says he cannot see that waning, as Labour promises voters the Earth in a bid to nail the next election. He says the spending is not focused on the productive capacity of the export sector. He says our dollar is a sure bet for speculators right now, and will remain so as long as Labour's big spending programmes continue to underpin consumer demand.
One sector benefiting from the strong currency is tourism. House of Travel says it is continuing to see punters through the door wanting to take advantage of the rates.
Spokesman Brent Thomas believes the trend has some way to run yet. He says while unemployment is low and while the public is feeling confident, there is no reason to suspect it will not continue. Brent Thomas says people planning travel at the moment are getting a good deal.
- NEWSTALK ZB
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Rebecca had this to say:
I would like to comment on a paragraph in this article: "One sector benefiting from the strong currency is tourism..."
One must assume that you are talking about New Zealanders taking holidays overseas and not tourists coming to New Zealand or New Zealanders travelling within New Zealand.
A strong New Zealand currency hinders tourism to this country. And with rising petrol prices I don't believe New Zealanders will be engaging in more travel within New Zealand.
