Forum Archive Index - September 2001

["Jeremy" <jeremy@electrosilk.net>]

>From G Stolwyk :

> A country with a strong currency has more room to move.
> Interest rates of such a country are relatively low.
> Interest rates in a country like NZ are relatively high.

The reason interest rates are high is because among other things they are a
Government mechanism to influence the exchange rate.  High interest rates
result in overseas entities purchasing NZD.  Lower rates result in sale of
NZD for a more desirable currency.  The purchase and sale of NZD on the
international money markets makes the exchange rate go up and down.

Any time the Government wants to drop the dollar further it will drop the
interest rate.  When it wants it to rise it will raise the interest rate.

Sometimes it has no choice due to internal economic factors and the NZD then
becomes a victim of failure of Government economic policy.

Secondarily, constantly falling NZD is a symptom of a lack of demand for NZ
goods (basically commodities).  As the demand for commodities increases, so
the NZD will rise and the Government can afford to drop interest rates.

Jeremy



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