WELLINGTON, Dec 8 (Reuters) - The New Zealand dollar may fall further as interest rates come down but the economy should have only a shallow recession, Prime Minister John Key said on Monday.
Key, a former foreign exchange dealer, told Television New Zealand the kiwi dollar remained vulnerable as the central bank cut rates to buoy the struggling economy. The currency has fallen around 35 percent from its March peaks.
'It's a reflection of the fact that interest rates drive the exchange rate, and interest rates were cut aggressively, which was a good thing, on Thursday,' he said
The Reserve Bank of New Zealand cut rates by a record 150 basis points to 5 percent on Dec. 4, and said further, smaller cuts may be possible, although the bank governor Alan Bollard said the economy had probably already moved out of its first recession in a decade.
Key said he did not believe his comments would influence movements in the kiwi dollar, which was steady around $0.5340/50 on Monday.
Since the kiwi was floated in 1985, it has looked undervalued when below $0.50, and overvalued when above $0.70, Key said.
The New Zealand dollar struck a post-float high of $0.8215 in March this year, but has since tumbled as the global financial turmoil saw investors pull out cash from risky high-yield currencies.
'My own view is that we won't have a really, really deep recession, providing the world doesn't have a catastrophic meltdown,' Key said.
The Treasury is expected to relase updated fiscal and economic forecasts within the next two weeks. ($1=NZ$1.88)
(Reporting by Adrian Bathgate; Editing by James Thornhill) Keywords: NEWZEALAND ECONOMY/KEY (adrian.bathgate@reuters.com; +64-4-4714233; Reuters Messaging: adrian.bathgate.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2008. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
Key, a former foreign exchange dealer, told Television New Zealand the kiwi dollar remained vulnerable as the central bank cut rates to buoy the struggling economy. The currency has fallen around 35 percent from its March peaks.
'It's a reflection of the fact that interest rates drive the exchange rate, and interest rates were cut aggressively, which was a good thing, on Thursday,' he said
The Reserve Bank of New Zealand cut rates by a record 150 basis points to 5 percent on Dec. 4, and said further, smaller cuts may be possible, although the bank governor Alan Bollard said the economy had probably already moved out of its first recession in a decade.
Key said he did not believe his comments would influence movements in the kiwi dollar, which was steady around $0.5340/50 on Monday.
Since the kiwi was floated in 1985, it has looked undervalued when below $0.50, and overvalued when above $0.70, Key said.
The New Zealand dollar struck a post-float high of $0.8215 in March this year, but has since tumbled as the global financial turmoil saw investors pull out cash from risky high-yield currencies.
'My own view is that we won't have a really, really deep recession, providing the world doesn't have a catastrophic meltdown,' Key said.
The Treasury is expected to relase updated fiscal and economic forecasts within the next two weeks. ($1=NZ$1.88)
(Reporting by Adrian Bathgate; Editing by James Thornhill) Keywords: NEWZEALAND ECONOMY/KEY (adrian.bathgate@reuters.com; +64-4-4714233; Reuters Messaging: adrian.bathgate.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2008. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.