Reducing Govt debt seen as crucial

Act New Zealand leader Don Brash (left) with list MP Hilary Calvert and Clutha-Southland...
Act New Zealand leader Don Brash (left) with list MP Hilary Calvert and Clutha-Southland candidate Don Nicolson.
Getting government spending under control and having a lower official cash rate were key to getting the value of the New Zealand dollar back to a sustainable level, Act New Zealand leader Don Brash said yesterday.

As markets around the world fell yesterday, the New Zealand dollar also dipped heavily, but remained at a level high enough to hurt exporters at US86.27c.

Dr Brash said the Government could not do anything about the weakness of the United States currency or the amount of offshore money being brought into New Zealand to rebuild Christchurch.

However, the Government was borrowing about $300 million a week but not from "mum and dad investors" in New Zealand.

It was borrowing offshore and that meant overseas investors having to buy New Zealand dollars to buy the government bonds.

The official cash rate at 2.5% was still much higher than the central lending rates in the US, the United Kingdom, Japan and the euro zone.

"If the Government gets its borrowing under control, the Reserve Bank will be obliged to cut the OCR. If the OCR was 2% or 1%, our currency would be much lower. "

Dr Brash said there had been speculation from Labour and the Greens that the Reserve Bank should intervene to force the kiwi lower. But he noted the Swiss central bank had recently spent $US43 billion in trying to lower the value of the franc, and had failed.

"I can tell you it's expensive and it doesn't work," the former New Zealand Reserve Bank governor said.

Dr Brash has been touring New Zealand speaking in as many forums as he can to promote the message that the economy needed to be rebalanced.

New Zealand was losing people to Australia on a large scale and things like rising government debt, tax, the Resource Management Act, and the emissions trading scheme were all part of the reasons for the loss of Kiwis offshore, he said.

Craigs Investment Partners broker Chris Timms said Asian markets were down between 2% and 2.75% soon after opening, following the lead from the US Dow Jones Industrial Index.

Australian shares also fell sharply on fears the US might be sliding back into recession.

New Zealand's NZX-50 was down 1% mid-afternoon then retraced slightly, closing down 0.80% at 3369.82.

"The local market is feeling the effects of a nightmare on Wall Street.

"You can forget about the debt management problems of last week. There are rumours of just how bad the US economy really is with data coming out not as good as anticipated."

It was hoped the US economy was slowing growing but manufacturing data was disappointing, he said.

"We are back to focusing on the debt issues in Europe. What was the bright light of the US economy is fading," Mr Timms said.

US analysts said the US stocks fell as investors turned their attention to the stalling economy.

While risks for intervention were keeping investors from selling sharply, a sell-off in global cyclical shares suggested that foreign investors were withdrawing from risk-taking for the time being, he said.

Gold surged to a record high as investors returned to a safe haven and away from risky assets.

Reuters reported that Europe's second biggest debtor nation, Italy, found itself sucked deeper into the euro area danger zone, prompting emergency consultations in Rome and among European capitals.

Yields on Italian and Spanish bonds hit their highest levels in 14 years, with five-year Italian yields reaching the same level as Spain's in a sign Rome was overtaking Madrid as a key focus of concern about debt sustainability.

 

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