This reflects the impact of considerable policy easing by the ECB and Bank of Japan, which has further widened long term interest rate differentials with New Zealand. While the New Zealand dollar has eased recently on a TWI basis, the exchange rate remains unjustified in terms of current economic conditions, particularly export prices, and unsustainable in terms of New Zealand’s long-term economic fundamentals.
We believe that, over time, New Zealand’s growth differentials will narrow vis a vis the advanced economies, making the New Zealand dollar more likely to undergo a significant downward adjustment. Reflections on monetary policy So what might this mean for monetary policy going forward? Annual consumer price inflation is currently running at 0.8 percent.