The exchange rate hit a two year high on the Trade Weighted Index (TWI) last week.  Our consistently overvalued exchange rate continues to be an issue for the competitiveness of manufacturers and the wider tradable sector, and we need to investigate ways to bring it back to a sustainable level over time,  say the New Zealand Manufacturers and Exporters Association (NZMEA).

NZMEA Chief Executive Dieter Adam says, “The exchange rate hit a two year high on the TWI last week, and while it has dropped back less than a cent since, it remains at a level that damages the competitiveness of our manufacturers and tradable sector.

“This is not a new issue – our exchange rate has been consistently overvalued over the last decade, the average of which has been over 10 percent higher than the previous two decades in TWI terms.  This does not, however, mean we should accept the current level as inevitable.  We need to see some fresh thinking on how to create conditions that can give our economy a more sustainable exchange rate over time, from both the Reserve Bank of New Zealand (RBNZ) and Government.

“A competitive and fairly valued exchange rate is a key component of ensuring our productive manufacturing and exporting sectors can grow over time, bringing quality jobs and much needed export income.  The failure to make ground on the Government’s target of improving exports to 40% of GDP has no doubt been hampered by the consistent overvaluation.

“In terms of the RBNZ’s OCR decision tomorrow, we believe holding the current rate is the right move.  While we are starting to see signs of an inflation uptick, moving rates up prematurely, as we saw in 2014, would add additional pressure onto our exchange rate.  The exchange rate is currently around 4% above what the RBNZ forecast for the upcoming March quarter.” Says Dieter.