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Central Banker Bollard gives the “Green Light” to New Zealand’s Economic Recovery!
By Sean Hyman | July 14, 2009
Last night, New Zealand’s central banker stated that “early signs of a global recovery have emerged” and that “New Zealand looks likely to start recovering ahead of the pack”.
How’s that for an “economic green light”? Pretty good, huh…
More specifically, he stated that their economy will start growing in the final quarter of this year. He’s still likely to keep their interest rates low until late 2010 though (because the economy needs further stimulus).
Bollard also expressed his interest in a weaker NZD dollar, however, I’m not so sure he’s going to get that wish granted with a speech like last night’s speech.
Sentiment improves when economic growth resumes. On top of that, New Zealand still has the 2nd highest interest rate of any industrialized nation, so the “carry traders” may still bid up his currency while at the same time selling the U.S. buck or yen!
A recent Westpac report expects that their economy will grow 2.6% next year (more than twice the pace it forecast in April). Again, another “big plus” for the carry traders that live the Kiwi dollar (NZD).
So far, the New Zealand dollar has gained a whopping 17% on the U.S. dollar in the past 6 months. With reports like this from Westpac and Bollard, that trend is more likely to continue than to abate!
So while Bollard calls recent gains in the New Zealand dollar “unhelpful”…he may find that it becomes even more “unhelpful” in the weeks/months to come!
As things get “booming” again, it looks like he could increase the minimum capital requirements of banks to reign in excessive lending by making them hold more money in reserves. So he will be able to pull in the reigns a bit when the time comes…but possibly not enough to deter more Kiwi buying!
Sean Hyman
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