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RBNZ's McDermott: Kiwi "Overvalued" From Long-Term Perspecti

The New Zealand dollar is "overvalued" from a long-term perspective and the high exchange rate is contributing to economic imbalances, Reserve Bank of New Zealand Assistant Governor John McDermott said Friday.

"The central bank would like to see it lower in order to promote more sustainable economic growth," he said during a speech in Wellington.

The kiwi's current strength can be explained by factors such as the nation's high terms of trade, especially dairy prices, and relatively strong economic performance, McDermott noted. According to the official, addressing underlying imbalances in the economy is the key to counter the overvalued exchange rate.

He said evidence in New Zealand and elsewhere has suggested that foreign currency intervention is unlikely to have a sustained impact in lowering the exchange rate. "Saying there is little monetary policy can do about the exchange rate, however, is not the same as saying there is little that can be done," the official noted.

Reducing the magnitude of domestic demand cycles as well as altering the level and pattern of saving and investment are actions that can ease pressure on the currency, McDermott said.

by RTT Staff Writer