KEY POINTS:
New Zealand's dollar is "stubbornly high", buoyed by high interest rates, and is a constraint on the economy, Finance Minister Michael Cullen says.
The currency has gained 8.4 per cent in the past three months, making it the best-performing major currency.
The kiwi rose half a cent against the US dollar yesterday in a two-hour burst in the early hours of the morning and ended at US66.95c, up 0.45c from the day before.
"The dollar remains stubbornly high as our relatively high interest rates attract persisting offshore investor interest," Cullen said in a speech in Wellington.
The strong currency also makes life difficult for exporters.
A surge in consumer spending, sparked by a record-low jobless rate, pushed the current account deficit to a record $15.2 billion in the year ended June 30.
Cullen said the economy was also constrained by the hangover from stronger economic growth from 2002 to 2005, when it grew by an average of 4.2 per cent a year.
"Inflation remains at uncomfortably high levels largely as a result of bottlenecks in the domestic economy," he said.
"The consumption boom has fuelled an unhealthy current-account deficit."
Annual inflation was a five-year-high 4 per cent in June.
Cullen said the Government would keep a tight rein on spending.
It was also resisting significant income tax cuts to avoid fanning consumption and prompting the central bank to raise interest rates.
- BLOOMBERG, NZPA