English Says New Zealand Dollar at Level That Assists Exporters

By Tracy Withers

Jan. 21 (Bloomberg) -- New Zealand’s dollar has declined to levels that should benefit the nation’s exporters when global markets and prices recover later this year, said Finance Minister Bill English.

The currency has slumped 30 percent in the past year, the second-worst performing major currency after South Korea’s won, according to Bloomberg data, as the New Zealand economy sank into its first recession in a decade. The local currency fell to 51.69 U.S. cents today, close to the lowest level in six years.

New Zealand’s dollar climbed to a 23-year high of 82.13 cents in February last year, hindering the nation’s export industry that has annual sales equivalent to 30 percent of the $130 billion economy. Companies including manufacturer Fisher & Paykel Appliances Ltd. responded by closing factories and shifting operations overseas because the currency’s surge made locally produced goods less competitive in foreign markets.

“In the long run, 80 cents makes it difficult to get the adjustment New Zealand needs of pushing resources into the export sector,” English, 47, said today in an interview at his office in Wellington’s Beehive parliament buildings. “At 55 cents that’s much more likely, as we come out of a recession.”

He declined to provide forecasts for the New Zealand dollar or say what level the government wants it to be.

English, who became the finance head after his National Party won a Nov. 8 election that ended nine years of Labour Party rule, also said the central bank has room to cut interest rates to support an economy that shrank 0.4 percent in the third quarter.

Export Boost

The government wants to bolster overseas sales of meat, butter and wool as it seeks to make the economy become less dependent on domestic consumption, he said.

An over-reliance on consumption has boosted debt levels and increased demand for imported goods, helping swell the current- account deficit to 8.6 percent of gross domestic product in the year ended Sept. 30. By comparison, the U.S. shortfall is 4.8 percent of GDP.

Last week, Standard & Poor’s revised the outlook on the country’s AA+ credit rating to negative from stable, citing concern over the nation’s growing external liabilities.

“With a country that has got a high current-account deficit and growing public debt, there’s a risk that if we start being seen by debt markets as a risk you can get an exchange-rate drop which will drop everyone’s living standards,” English said. “That’s one of the risks if we get it wrong.”

The government is balancing a requirement to keep its debt levels under control against the need to stimulate the economy, which began contracting in the first quarter of 2008.

‘Rating at Risk’

The S&P statement was “a warning that significant stimulus puts our credit rating at risk,” English said. “That’s something we take heed of.”

The government will cut income taxes in April following reductions under the previous administration in October. It also plans to bring forward spending on infrastructure projects including roads, schools and housing.

As well, the Reserve Bank probably will lower interest rates further, English said. Governor Alan Bollard has reduced the official cash rate by 3.25 percentage points since July. He will cut the benchmark by a further 1 percentage point to 4 percent at the next review on Jan. 29, according to all eight economists surveyed by Bloomberg News.

“I would agree with the governor’s statements that the Reserve Bank has more room to move on rates than most other central banks,” English said. He declined to comment on where he would like rates to go.

‘Decisive Action’

Bollard makes his decision on interest rates independently of the government.

English expects lower borrowing costs and the existing government programs will steer the economy out of recession later this year. The Treasury Department last week forecast the economy will stagnate in 2009.

“Over the next months, you’ve got the Reserve Bank probably taking decisive action on interest rates, you’ve got tax cuts in April and an infrastructure-spending program to get up and running,” he said. “We believe for now that’s the right balance of further stimulus and debt buildup.”

To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net.