The PM should not talk on where he wants the currency

Stuff reports:

The New Zealand dollar has slumped US1 cent after the Reserve Bank revealed a intervention of more than half a billion dollars during August.

But the Prime Minister says the currency remains far above ‘‘Goldilocks'' fair value level of about US65 cents.

The kiwi dropped from US78.3c to US77.3c late this afternoon after new figures were released showing the Reserve Bank sold $521m of its New Zealand dollar holdings in August, a massive jump from July when it sold only $2m.

said the central bank had put its money where its mouth was. The Reserve Bank was ‘‘shorting'' the dollar when it was high and when it was expected to fall and would be happy with the latest fall, economists said. The scale of the intervention was seen as ‘‘material'' and involved the most selling of the New Zealand dollar since 2007.

However, while the currency has fallen heavily this month, down more than US6c, it only dropped about US2c during August when the central bank was actually selling.

The kiwi had already fallen earlier today after Prime Minister John Key, a former currency trader, said the dollar was too high and the “Goldilocks” level (not too high or too low) would be about US65c.

“I happen to actually support the view that the Governor has that the exchange rate is over valued, so if they have intervened, it would be a matter for them, but it would seem fairly logical,” Key told reporters this afternoon.

I don't think the PM should comment (even if in support) on decisions of the Reserve Bank Governor. I tweeted:

I would prefer if the Prime Minister did not think aloud about what the Reserve Bank should do.

Matt Nolan at TVHE blogs:

Given their standing and thereby ability to seemingly signal intervention in markets, the prime minister and finance minister really need to keep quiet about policy where there is an independent body involved – as it both creates volatility and indicates that such things are a more political issue.  I was pissed off when Cullen did this, pissed off when Key has done it in the past, and I'm pissed off hearing it now.  I don't care if someone asked the frikken question, part of central bank independence is having fiscal authorities show a bit of discipline with their comments.

It is a bad precedent. We are lucky we have had strong Governors who can stand up to the Executive (as happened with LVRs), but we may not always have such people in the future.

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