The Reserve Bank’s fourth consecutive lift in interest rates is deeply concerning to the export sector and points to the bank being “far removed from reality”, according to the president of the Export Institute of New Zealand, Bob Fenwick.
“The bank seems unaware of the impact its recent moves have had on the productive sector and more particularly the SME [small to medium enterprise] merchandise export sector.”
Fenwick describes as “bizarre” reasons given by the Reserve Bank for increases such as robust immigration, buoyant housing sector, increased tourism and strong export incomes.
“Australia has [those same factors], yet left their rate untouched at 4.75 percent the same day the Reserve Bank pushed ours out to 5.75 percent.”
He says the RBNZ has succumbed to the badgering of certain bank economists whose organisations stand to gain through bust and boom market conditions.
He also disputes comments coming from those economists about the impact of rapid increase in the US/Kiwi dollar exchange rate.
“Newspaper columnists report recently they have been told by Bank economists that the impact of 19 percent increase in the exchange rate has been mitigated because exporters have long hedging profile and the rise should not have any significant negative impact.
“Maybe the economists only talk to the country’s top 100 exporters who probably all hedge. What about the other 8500 odd exporters who each export less than $5 million per year?”
Such smaller exporters mostly don’t have forward cover but are the backbone of the merchandise export industry, representing around half the country’s foreign exchange earnings, says Fenwick.
“These SMEs are very concerned at such rapid exchange rate rise – particularly as it is largely caused by imported hot money driving the rate up as speculators seek to benefit from our excessively high interest rates.”
Hot money does nothing for the economy. It only benefits offshore fund managers and speculators, says Fenwick. But the loss of hard-earned export markets will have negative impact.
“Export-related growth is the only way for our economy to progress. As long as we have Reserve Bank ignoring the need for either growth or competitive dollar we will have stuttering economy.
“A 21 percent increase in the OCR [overnight cash rate] in three months and resultant 19 percent increase in the exchange rate are not ensuring smooth confident economy. It is generating one of boom and bust.”
