And in that sense the lower exchange rate can be seen as a healthy development. It is the floating exchange rate at work, encouraging the production of goods and services which will reduce our balance of payments deficit and discouraging the consumption of goods and services which are imported or could be exported.
To the extent that the low exchange rate persists, and is not negated by higher domestic inflation, this is likely to see stronger growth in exports of goods and services, slower growth in imports of goods and services, and a reduction in New Zealand’s balance of payments deficit on current account.