WELLINGTON, New Zealand – New Zealand’s central bank has intervened in the currency market for the first time in five years to try to curb the local dollar’s rise.
The rising Kiwi dollar, as the New Zealand currency is known, has been hurting the country’s exporters. It is up about 12 per cent against the U.S. dollar since the middle of last year.
Reserve Bank of New Zealand Governor Graeme Wheeler told a parliamentary committee Wednesday that the central bank had intervened recently. The New Zealand Herald newspaper reported he said that such interventions would not significantly change the level of the exchange rate but could potentially take “the tops off rallies.”
Wheeler has consistently described the currency as overvalued and recently pointed to Japan’s moves to double its money supply in an effort to end deflation as making things worse.
“Further appreciation has occurred partly in response to the announcement of a substantial quantitative easing program in Japan,” Wheeler said two weeks ago. “The high New Zealand dollar continues to be a significant headwind for the tradables sector, restricting export earnings and encouraging demand for imports.”
A majority of New Zealand’s export earnings come from milk, beef, wool and other farm products.
Reserve Bank spokesman Mike Hannah on Wednesday declined to elaborate on the intervention. He said the bank would be making no further comment beyond what Wheeler told the committee.
Also Wednesday, the central bank issued a report raising concerns about the country’s rising house prices and announced that from September, banks would have to hold more capital for riskier loans.
“Housing pressures are increasing risk in the financial system,” Wheeler said in a statement. “House prices relative to disposable incomes are already high by international standards. Further price escalation will worsen the potential damage that could result from a housing downturn.”
The Kiwi dollar was trading down 0.7 per cent Wednesday at about 84 cents.