KEY POINTS:
It may be a few more weeks before it is known whether the Reserve Bank has taken any steps to dampen the soaring New Zealand dollar.
The kiwi has continued its march upwards this morning, reaching US81.7c at 11am.
BNZ currency strategist Danica Hampton says the Reserve Bank is unlikely to intervene in the currency markets as openly as it did last June and it will be another month before official data reveals whether the bank has taken any measures.
The dollar is being pushed up by renewed demand from Asian investors, as interest rates in the US continue to wane.
The dollar's record heights against the greenback and the currencies of most of our major trading partners are adding to weight to calls for a change to the Reserve Bank's monetary policy framework - to give more weight to economic growth.
Aside from ongoing US dollar weakness, the major factor driving the kiwi upward has been New Zealand's 8.25 per cent official cash rate, the highest among developed economies.
The Reserve Bank raised the official cash rate four times last year as it sought to control inflation, opening up a huge yield differential with most other economies. The US Federal Reserve's string of deep cuts to its own rates in response to US woes has further widened the gap which makes the kiwi a highly sought currency for yield-chasing international investors.
Export New Zealand chief executive Bob Walters said New Zealand's interest rates, while "incredibly profitable territory for speculators", were disastrous for exporters and other parts of the productive sector.
Recent fallout from the high-riding kiwi included Fletcher Building's decision to move its Laminex operations offshore and Fisher & Paykel's plan to move some manufacturing capacity to Thailand. Yesterday fruit company Turners and Growers reported a 17 per cent decline in net profit citing the impact of the high exchange rate.
Walters believed the Reserve Bank and policymakers, while acknowledging the problem, had shown scant enthusiasm for tackling it seriously.
"Politically, it is quite tricky."
Parliament's finance and expenditure select committee is currently reviewing the monetary policy framework and is expected to report its findings within the next few months.
In a submission to the committee last year, sharemarket boss Mark Weldon advocated a dual inflation-and-growth mandate similar to the US Federal Reserve's. Yesterday he said conditions had worsened making the need for changes even more acute.
Higher labour costs were holding back productivity, and the cost of capital for businesses had risen due to the high OCR and rising spreads on credit markets.
"Load those factors on to a dollar over US81c you are really concerned that something needs to be done for the productive sector and for the economy more broadly, and that means starting to cut interest rates and soon, otherwise you get really concerned we will end up like the US 12 months from now having to cut rates dramatically.
"Are you going to take the risk of inflation at 3.5 to 3.8 per cent or will you take the risk of a potentially bad recession which is worse? That's got to be a consideration for sensible monetary policy."
- NEWSTALK ZB, ADAM BENNETT
