Rising New Zealand Dollar Could Erode Improvements In External Balance: Bollard

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The improved global outlook has been positive for New Zealand, but the recent rise in the New Zealand dollar could prevent the continued improvement in the external balance, the Reserve Bank of New Zealand's governor Alan Bollard said Wednesday.

While presenting the central bank's November Financial Stability Report, Bollard noted that some rebalancing had occurred over the past year with respect to the current account, as the deficit had begun to narrow. "However, the recent significant rise in the New Zealand dollar, largely on the back of increased global risk appetite and a falling US dollar, could hinder further improvements in the external balance", he said.

To reduce the country's vulnerability to external shocks Bollard said, " We need to ensure there is no return to a debt-fuelled housing cycle, which would likely bring with it further exchange rate pressure and erosion of competitiveness."

Meanwhile, the governor pointed out that the fiscal and monetary stimulus measures which helped in the global recovery, could not be put in place forever. Bollard said the stimulus measures in New Zealand in the form of additional liquidity to support the banking system would be reduced gradually. Further, while the government has extended the retail deposit guarantee scheme, the entry criteria was tightened and the guarantee fee substantially raised, he added.

(Market News Provided by RTTNews)