KEY POINTS:
Alarm bells may be ringing at the Reserve Bank, as the dollar pushes past the 76 US cent mark.
The dollar soared to 76.24 US cents overnight before settling back to around 76.18 USc.
Here is the latest selection of Your Views:
Economist ex-forex trader
Immediate measures are needed to stop further carry trades,the main cause of the strong $.Suggest: Freezing all currency swaps/forward trading involving $(Malaysia,s example;)a 20 per centdevaluation(Australia's example) and fixed rate of exchange vs yen and US$ for an unspecified time frame. That should scare the hell out of yen carry trades and bring a rapid fall in the $/US and $/yen exchange rates. Next,put a cap on housing loans to foreigners and impose a 20 per centcapital gains tax on non-residents accounts. This should weed out foreign speculation, without penalising domestic credit demand that contributes to economic growth. Market intervention drains reserves besides being of short-lived effect as the yen carry trades volume alone is overwhelming.
robburd looking in from afar
Congratulations to the powers that be in our land. It took me a while but I've finally figured it out. We're not stupid - New Zealand I mean, The government and Reserve Bank know (don't they?) That intervention was just a ruse for the rest of the world. The Bank hit the market for adjustment as a ruse (don't forget! we're in it for the long run). Interest in the Kiwi will continue to fly and then...will peak at over 80 cents (maybe), the Bank has made some money,then government intervention will cause the Kiwi to tumble. We'll slap them with a 'no more foreign interest in NZ land package" no more 'selling our country approach' Contain the housing market. It'll hurt some of us but depress our miniscule market dramatically, Everyone will want to sell, no one will buy until its' Kiwi price'and once interest rates hit an all time low.... the whole world will be reeling in what they're missing out on.Another Lord of the Rings, another Shania Twain Music Video and they'll be screaming out to get let back in! Let's face it, if we think about it the right way.. we do live in the most desirable place in this ever smaller world..don't we?
Northern Irelander in New Zealand
New Zealand is in the dire financial straits of today through two sets of circumstances.
1. The NZ dollar has been captured by overseas investors and the Reserve Bank has not been strong enough to move the interest rates down earlier in the financial cycle.
Will it ever stand up to overseas investors? What is the end result going to be for the high interest rate policy? Very poor New Zealanders?
2. The NZ Government is very weak with regard to finance. It can introduce a smacking bill but it cannot tax the earnings of 200,000 property speculators.
The remaining bulk of NZ taxpayers thus support this 200,000. Where are the greatest number of votes? In the 200,000 or the overtaxed others?
Al (Singapore)
Bob Jones has the right attitude - "Anything the Labour Government does will eventually make the rich richer". I am an ex-pat rental investor in the NZ market. I am 100 per cent positive that whatever Labour does, in the long term will make me more money. Bring it on Labour, capital gains, non-claimable expenses, disinsentives to invest. I can just see the property prices going through the roof. Hurray for Labour!
Aislabie
We know that many other nations have been printing money like crazy. Understandably because it gives those nations very real short-term gains. However we should not follow them down this devaluing currency path. Our dollar is not increasing in absolute value, the currencies we weigh against are devaluing in real terms. I think a strengthening NZ dollar is a good sign.
Old Dealer
As an ex-foreign exchange dealer I am yet to see a Central Bank lose a long term battle with the markets. If the Japanese housewife is the problem via Uradashi issues, then the next stage would be for Cullen to announce a new tax on any new issues or existing issues that are rolled over. However, this will need to be combined with a reduction in consumption spending by New Zealanders' as this is funded by the Japanese housewife. It is Cullen's high spending combined with New Zealander's borrowing (household debt at over 160 per cent of incomes)to spend that are keeping interest rates high.
Talk of taxing capital gains on investment properties is nonsense and just another penalty for New Zealanders'. At the end of the day New Zealand needs to make things and export them in order to reduce our dependence on offshore capital (current account deficit of around 9 per cent of GDP is sign of an overvalued currency). Letting the exchange be overvalued does not help this cause. Currently we do not make enough products and have considerable work to do to get the investment we need in productive resources.
Darcy Snowden
The $ is not high, it is internal costs that are high and more particularly those of government and local bodies.
Richard (Auckland)
All Mr Bollard has done is highlight his predicament to the world; highest interest rates, lowest unemployment, strong economy, governement and local government all fuelling inflation with spending. Now we have decided to sell NZ dollars in the hope this has an effect, picking currency turning points is an art form, what skills do the RBNZ have in active currency management? Looks more like a further wild idea, just like extra taxes on mortgages, capital gains tax etc, all too make up for the fact the RBNZ tightened way too late. Bollard should resign he has no credibility left.
Kiwijohn
Brian Gaynor highlighted the incongruence of the current unjustifiably high level of the OCR in last Saturday's Herald "What goes up needs to start coming down". The RBNZ should seriously contemplate an immediate two per cent cut of the OCR in parallel with either a cost neutral Capital Gains Tax solution or better still an equivalent levy solution on all NZD mortgages. That will take care of the carry trades overnight, is inflation-neutral by definition and will take some real leadership to implement. Does this country still have any leaders? We need to put a stop to the rampant international speculation in our currency, not over the coming months - now. This is an urgent plea for help.
Whangarei
NZ has lost control of its currency. Like the pound, it is being traded by speculators and kept artificially high as an offshore money market fund. The US dollar and the Yen are trailing lower to align with China. The Euro reflects bloat and a managed welfare state. The Kiwi must come lower, and soon. The housing market correction will feel severe due to over extended credit. How can houses double in price? At the same time the dollar doubles in purchasing power? Sanity will prevail - sadly.
Robert Leivers
Warning from the UK - learn by the experience of others. As your Mr Key (National) might well remember perhaps to his benefit, the 1990s UK "Black Wednesday" demonstrates that when currency marketeers sense blood and instability, then Government intervention can become a costly and pointless exercise. Again, learn that when UK interest rates surged in one day to around 15 per cent, the property price bubble burst, and the property market collapsed, putting many overborrowed homeowners into negative equity (mortgages higher than the house value). The marketeers dictated UK economic policy in the face of Treasury weakness. You may have to accept a Govt levy/tax on your mortgage repayments, perhaps reclaimable through increased longer term savings. That could be tax neutral for most individuals if you switch to saving. Then you could see your "detached" OCR reduced gradually, and remove the incentives (and power) from the currency marketeers. Repeated interventions will only encourage further speculation. Don't accuse inward migrants, they're already looking elsewhere, and high value foreign business investors certainly won't risk NZ at this uncertain time.
Al (Singapore)
The Labour Government is getting itself in a mess. The whole financial can of worms, whether it be interest rates, currency rates, or inflation is all because this Govt is running a socialist state that is spending more than it earns and spending the money in areas that will never give them a return for their investment. Unless you call buying votes a good investment. Housing will be next. Lets see, there is a huge shortage of houses, lets make it harder for investors to develop more rental properties. That should fix the problem. Duh!
Albert
Reserve Bank intervention? What intervention? Those in the currency market will tell you there are trillions of dollars out in the market. How much have you got, Bollard? (A billion = 1/1000 of a trillion.) Get real and don't be a lizard that talk like a crocodile. Just concentrate on keeping Kiwi biz onshore, attract overseas investors and keep the economy afloat. If you can't do the job, you should resign and let some else more capable take over and save us.
Ross M
Bollard's reversion to Muldoonism's Keynsianism, will produce the same results: a banana republic. Some people simply don't learn from history.
Rawiri Johnston
Ultimately this kind of intervention must fail. It's a retrospective action design to fix problems resulting from the banks own actions in the first place - and demonstrates quite clearly the problems associated with a single issue policy approach towards inflation in general, and house prices specifically. Using interest rates as a mechanism for controlling house prices is a blunt instrument at best - and can only influence the supply side of finance for the housing market (i.e the demand will still be there and has to go somewhere). More importantly, the single-minded use of interest rates has now created problems in the currency markets, to compliment the problems already cause in the export and import markets. Exports have become less competitive, while imports become more attractive further adding to the inflationary pressure the bank is trying to deal with!
Roger (Auckland)
Just drop the interest rate to a ridiculous level for a month or two. This will send a clear message to offshore investors. Most of New Zealanders are on fixed interest rate anyway. The one who are still on a floating rate will only enjoy for a month or two. Not enough time to see any significant movement in property prices.
Aria Wijaya
The intervention is favourable, considering that the Reserve Bank has never done it before, bear in mind that there is a lot more to it, I've done my research, blah blah blah, and it says that if the Kiwi dollar appreciates far too high, the exporter won't get much out of it, but if it depreciate far to low then the importer will need to pay more for their goods than they normally do. If this is the case, then maybe it is a good idea to allow the cap on currency and make New Zealand Export more competitive in the world market.
Jack
Stop the shadow boxing and simply add a capital gains tax on property other than the one in which people live. Property owners should also have to register with the IRD as a sole trader or company. We could fix the crazy house prices and the dollar in one hit.
Robin, smart expat
Either Bollard is really smart and as slippery as a snake or he is really silly and hoping for a miracle. If he is smart, he will continue buying other currency until the greedy foreign carry trade merchants catch on. Then once he has brought as much foreign currency as possible, drop interest rates. If he is stupid he will continue to let the kiwi economy go down the drain. The New Zealand economy would be very easy to turn around. Why do you kiwis elect poor leaders? Why do you put cultural currency before people who can generate currency? Why do expat Kiwis that have become wealthy like me stay overseas?
Bells
I personally think Bollard is a confused person. He must sit up each night thinking and worrying about the NZ dollar and how strong it has got then go to work and either buys a whole lot of US money or put the OCR up. This can't be too hard and any kid with level 1 under of percentages. Can't he just let it go, let the house prices go up and up until they hit top prices. Then, eventually average Kiwis will move out of Auckland to Albany or maybe more south. It's not uncommon for UK or Aussie people to sit on trains or commute each day for over 1 hour so why can't we? Once the house prices get too high then people can't afford them and it will stop. If what Bollard is doing is right then there is no chance of a tax cut as any extra 100 a week in mortgage interest may be paid back in less taxes. Bollard, let the Kiwi dollar go high then we can all laugh, get rich and be happy.
Auckland
Waste of time and taxpayers money - won't work! We are mere minnows in the global currency market and there are individuals out there who could buy and sell the whole NZ economy without blinking. Get Real Dr B and work on more appropriate measures.
Farmer, concerned exporter (Whakatane)
These interventions make no sense. The RBNZ knows that. The only way out is to devalue, like the Bank of England has done in the past to give in to currency players.
Pete
So, Bollard thinks we should scratch our heads because the NZ dollar has risen to "unrealistic highs" while he raises the OCR to the "highest in the developed world" and then by doing us a favour by capping it? Intervention is such a euphemism used by the media.
Auckland
The reserve bank will not succeed in holding the dollar at 75 cents as this country does not have the reserves required for a successful intervention. The attempt is a waste of resources and will fail. Far better for the Government to tax foreign investors at a realistic rate (and even the suggestion of taxes may help to dampen enthusiasm for our dollar). Currently tax on interest on foreign held deposits is at about 2 per cent. Tax this at 15 per cent and we will see the dollar fall without the locals having to bear the pain!
YK Goh
I do not think that Mr Bollard's intervention of the Kiwi dollars by buying US $$ and selling Kiwi $$ will bring the Kiwi dollars down. This method is dangerous and will ultimately cost NZ to lose a lot of money because of the attractiveness of carry trade. Foreigners are attracted by the high interest rate here and the NZ dollars will be even more attractive when Bollard intervenes. They will buy more NZ dollars when it pullbacks. His proposed submission to the Government regarding capital gain tax and control of immigration should be taken seriously as I believe that at this point in time, the NZ Government needs to work closely with him to bring down the housing prices as well as the NZ dollars.
Larry (Auckland)
I think Bollard is doing the right thing, trying to put the brakes on the NZD. The question is, how many more times can the RB do this before it gets seriously out of pocket?
Mike (Rotorua)
Market manipulation must at times be very profitable to those in the know, similar to insider trading. Certainly, well practiced by the Labour party, it could be seen as treachery. In some countries heads would roll. "August 84 revisited" treason I say off with their heads, roll on Oct 08.
Ron (Warkworth)
With increased the overseas speculators buying NZ dollars, we must be in serious trouble when quite clearly dropping the interest rate would lose these overseas investors. At present we will lose all manufacturing and jobs. Holidaying overseas is more affordable and easier to emigrate to Oz its going to get so hard for ordinary people, yet the opposite end get more interest, and of course, pay more tax but the same amount of monies will still be spent the only outcome drop the interest rate or leave.
Davo (Auckland)
The Reserve bank puts up interest rates to curb inflation, which in turn makes the kiwi dollar more attractive to economies such as Japan, who have low interest rates and receive a better return on their investment dollars here, which in turn causes our currency to go up. It's a vicious circle with no end. A much more subtle strategy is needed to control both inflation and currency valuation. The tools the reserve bank are not nearly sophisticated enough to do it.
Mark
The RBNZ has joined central Government in the most expensive circus in the land. For those of us old enough to remember him, we had another financial despot nicknamed "Piggy" starring in the show a generation ago. Jesus wept, what next?
Jo (Auckland)
He deserves our support! He is the only one that sees the problem for what it is. He has repeatedly asked for extra measures from the policy makers in order to help inflation slow down, particularly the housing market which is the driving force. None of the politicians with the agendas has his conviction to speak up! I do not envy him, he is fighting a war with one hand tied behind his back. Bollard for Prime Minister! Fire the Nationals!
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