Copeland Gordon: Questions for Oral Answer — Questions to Ministers 
Copeland Gordon: Questions for Oral Answer — Questions to Ministers 
[Volume:606;Page:3983] 
6.  
GORDON COPELAND (United Future) 
 to the  
Minister of Finance 
: Following the release of the latest ANZ-Business NZ Performance of Manufacturing Index that shows expansion of manufacturing has slowed for two consecutive months does he agree the rapidly appreciating New Zealand dollar is having a serious adverse effect on the manufacturing sector; if not why not? 
Hon Dr MICHAEL CULLEN (Minister of Finance) 
: 
 The index referred to does show that manufacturing continues to expand but at a more moderate rate. So at this stage I think it is still too early to say the exchange rate is having a serious adverse effect on manufacturing. The effects on agriculture seem to be more pronounced at this point. 
Gordon Copeland 
: Can he assure the House that the effect of the exchange rate on New Zealand manufacturing and I guess also on farmers is taken into account when establishing monetary policy settings and if manufacturing and farming effects are not taken into account why not; and if they are is he satisfied that the current policy settings are effective in this respect? 
Hon Dr MICHAEL CULLEN 
: The general economic factors are taken into account in setting the monetary policy targets agreement. Within that agreement the actual settings in terms of interest rates are of course a matter for the Governor of the Reserve Bank. 
Luamanuvao Winnie Laban 
: Has the Minister received any assessments of the overall effects that an appreciating currency might have on the economy? 
Hon Dr MICHAEL CULLEN 
: The latest assessment from Treasury is that a lot will depend on the extent and duration of the period that the exchange rate stays at or above its current level. But overall the effect is expected to be mildly negative for real gross domestic product growth over 2003-04. Because the economy is carrying more momentum going into 2003 than previously forecast any moderation in growth is from a higher starting point. 
Dr Don Brash 
: Does the Minister recall explaining to the public that one of the key goals of the 1999 changes to the policy targets agreement was to reduce exchange-rate volatility and does he now believe that these changes were successful when the appreciation of the New Zealand dollar over the last year has been the sharpest since the New Zealand dollar was floated almost exactly 18 years ago? 
Hon Dr MICHAEL CULLEN 
: It is certainly true that the dollar fell to a very low level in early 2000 I think down to roughly US38c at one point so appreciating on that base looks like a large appreciation. I note that already the cross-rate against Australia which is the most important rate for manufacturing exporters is starting to come back as the Australian dollar recovers from the effects of droughts and fire. 
Rod Donald 
: Has the Minister sought or received any advice on the need for the Government to have a more active exchange rate policy given the negative impact the high dollar has had on manufacturers exporters and on the trade deficit and especially in the light of comments made by former World Bank economist and Nobel Prize winner Joseph Stiglitz that short-term capital flows and exchange rate policy are crucial to the success of small open economies? 
Hon Dr MICHAEL CULLEN 
: Exchange rate policy is always a matter for open public debate. The alternative of freely floating currency as New Zealand has is a fixed currency or some form of crawling peg. The experience is that sooner or later a fixed currency or crawling peg arrangement leads to very large losses by the State as speculators pick off that currency.