Praveen Menon

WELLINGTON (Reuters] – The central bank will be able to meet its objectives faster if the New Zealand dollar is stronger, Christian Hawkesby (RBNZ Assistant Governor) said Tuesday.

New Zealand’s economic recovery has been strong thanks to substantial stimulus funds and a low COVID-19 caseload. But capacity pressures continue to fuel inflation and increase labour demand, while also boosting the real estate sector.

Hawkesby stated that a stronger currency would help them achieve their objectives faster. A strong currency will allow for lower inflation to feed into lower currency tradeables.

In the third quarter of 2007, the unemployment rate dropped to 3.4%, matching its 2007 record. The reason for this was the decline in foreign worker supply due to international border closures following the COVID-19 epidemic.

While the government claims it will reopen border from January to allow for foreigners, they won’t let them in until April.

Hawkesby explained that while we’re aware of the risks in the short-term, the fact that the borders will reopen makes it easier for Kiwis and foreigners to enter the country.

He said, “So it is possible that the labour market becomes tighter before getting looser.”

Hawkesby indicated that while the RBNZ believes the unemployment rate will fall to about 4.4%, it assumes that labour restrictions will ease, something which the central bank does not have a lot of confidence.

He stated that he has more faith in the fact that there is tight labor market, which will increase inflation pressures.

After Hawkesby’s remarks, the New Zealand dollar rose slightly to $0.6737. It settled 0.2% lower at $0.6737 later.

Hawkesby reiterated the RBNZ’s monetary policy strategy to “considered actions”, which was evident in last month’s 25-basis point hike.

Criticisms of the central bank have focused on its involvement in the explosive rise in property values, which was driven by historically low interest rate and pandemic stimulus.

Geoff Bascand, the outgoing Deputy Governor said Tuesday that the RBNZ is not to blame for the bubble in the housing market.

Bascand stated that while we can be leaning against the house price increases and limiting credit availability, we can’t alter the supply or land and therefore should not be held accountable for the housing market.

“Our task (and ability) is to reduce financial instability risks and maintain overall inflation under control.”