This would suggest no need for monetary policy to react. On the other hand, to the extent that exchange rate weakness simply reflects other factors, such as the current account deficit or nervousness about the political environment, the Bank may well need to adjust monetary policy to avoid the total demand pressures on the New Zealand economy exceeding the country’s capacity to supply.
In this event, of course, interest rates may need to rise by more than projected in our Statement last week, as I noted at that time. But of one thing you can be absolutely certain. The Reserve Bank has absolutely not the slightest interest in choking off the recovery.