Dollar unsustainably high; debt-fueled housing boom may return

Wednesday 11th November 2009

Reserve Bank Governor Alan Bollard said New Zealand’s dollar is unsustainably high and the nation risks a return to a debt-fuelled housing cycle as home buyers enjoy looser lending conditions.

Releasing the central bank’s six-monthly stability report, Bollard reiterated his concerns that the high New Zealand dollar, which is already hurting exporters, could go higher if debt-driven housing investment brought “further exchange rate pressure and erosion of competitiveness.”

The New Zealand dollar fell to 74.12 US cents from 74.28 cents immediately before Bollard made the comments with the release of the stability report.

New Zealand is highly indebted by world standards and Bollard is looking for improvement in the current account deficit, though the prospects of a smaller deficit are clouded by the high kiwi.

“The exchange rate has risen sharply since March which is likely to limit further current account improvement over the medium term,” Bollard said.

“The current level of the New Zealand dollar is unlikely to be sustainable," he said. “It would be conducive to orderly adjustment if the currency fell gradually rather than remaining high for a period and then falling sharply,” Bollard said.

He urged banks not to “overly restrict” lending to businesses.

Businesswire.co.nz

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