Friday 28th January 2011
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"More of the same" was the overriding message from Reserve Bank Governor Alan Bollard when he addressed the Canterbury Employers Chamber of Commerce today.
In keeping with usual practice, Bollard kept closely to the script of his prepared speech with a few wry quips.
But he accepted some questions from members of the business audience who were keen to explore what Bollard's latest monetary policy statement means for them.
Travel consultant Robin Galloway asked about the future direction of the New Zealand currency.
Bollard responded that he couldn't answer what would happen in the short term. Experience had shown there was little value in anyone's short term forecasts.
But longer term, the "phenomenal" Australian terms of trade would mean that the New Zealand currency will be in a more competitive position.
The drivers for the weakening US currency were different, as they were for individual businesses in this country. Companies importing goods from the US and re-exporting to Australia would be in a good position.
From a longer-term perspective, a strong improvement in the terms of trade would see a strong exchange rate - it was a balancing act, he said.
Another questioner asked about the likelihood of the New Zealand economy being compromised by international events.
Bollard replied that the European risks were significant. A worsening in the position of countries like Spain and Greece would inevitably see the focus go on Australasian banks and the cost of funding go up.
The Canterbury earthquake was weighing on the minds of one businessman who asked about the significance of rebuilding spending.
Bollard said the earthquake had destroyed value and therefore people were poorer, but they could look forward to spending more from insurance money and personal savings. House prices could become a big driver of the local economy and the Reserve Bank was watching the outcome with interest.
"Was the earthquake a good thing? No, because it destroyed so much wealth."
Chamber of Commerce member David Halstead asked about the effect of last year's increase in the goods and services tax, and Bollard said it had been treated as a one-off as reflected in the decision to keep the Official Cash Rate steady.
"We were worried about businesses using it as an excuse to push up prices. We're reasonably comfortable with the outcome."
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