-
Related
Reserve Bank of New Zealand (RBNZ) Governor Alan Bollard says a high New Zealand dollar is unhelpful but will not be a big factor when considering raising interest rates.
Bollard appeared before parliament's finance and expenditure select committee on Wednesday.
Green Party co-leader Russel Norman asked him what trade off there would be between the high dollar and inflation.
"If you put interest rates up again then that's going to put further upward pressure on a trade-weighted basis on the New Zealand dollar," Norman says.
"On the other hand I guess you are worried about inflation, particularly coming out of our housing sector."
The dollar gained more than 50% since a low point in March. It rose to US75.75c this week.
The RBNZ will review the official cash rate next Thursday and is expected to leave it unchanged at 2.5%. Analysts are predicting the central bank could raise rates by March.
Bollard says the high New Zealand dollar is a "US dollar story".
"We don't want to see the New Zealand dollar being put under unnecessary pressure again.
"If and when we were to increase rates would you see that coming through on the New Zealand dollar? Well, you might, but actually the market's already taken that into account...they are quite a long way ahead.
"I wouldn't necessarily see a big impact that way."
Bollard says there is more activity in the housing market but the bank is not seeing much increase in credit going into housing.
"We don't want to get into a position where we are forced, as in the last cycle, to raise interest rates to a very high level with the consequent damage that can do.
"We would certainly be talking to banks about credit conditions and requirements before that happened.
"At the minute we don't have concerns, we think we have some room to use more tools we'd be looking at that over this next year."
Bollard also told the committee banks were constrained in how much they could make as provisions for bad debts because of accounting rules.
"That's showed up a big weakness in this very big crisis which is that banks are sitting there they can see bad debts mounting up, they can see past due, impaired assets, and losses coming and they are very restricted by current rules as to how much provision they can make even though regulators like ourselves are saying we think you need to provide for that."
He says banks are "onto it" in preparing for bad debts.
"But never-the-less provisioning hasn't necessarily been ahead of that wave."
