Dollar overvalued but it’s not serious - RBA Governor
(25 February 2013 – Australia) The Australian dollar is "too high" but not overvalued enough to require intervention.
Reserve Bank of Australia (RBA) Governor Glenn Stevens told the House of Representatives Standing Committee for Economics on Friday that while the dollar was ''somewhat overvalued'' a central bank would have to be very confident its currency was ''seriously overvalued'' before contemplating major intervention.
''It is too high ... on the best metrics that I have available to me, but we are not talking 50 per cent,'' he said, adding that it was ''a bit surprising it hasn't come down''.
''The evidence of history is that if it is overvalued by a long way it is going to come down.''
Stevens' comments contrasted with Reserve Bank of New Zealand (RBNZ) Governor Graeme Wheeler, who said on Wednesday that the New Zealand dollar was significantly overvalued.
Wheeler said in a speech in Auckland that there were no simple ways to lower the exchange rate, and ruled out quantitative easing, as his country was not experiencing the same economic struggles as the United States and European countries.
He added that quantitative easing by major economics - one of the factors that has seen the Australian dollar remain attractive to investors - was not expected to end in the near future.
'I hope to live to see the day when monetary policies in major economics get normalised,' Stevens said.
'If somebody said the current approach to policy in the major countries is likely to go on for a while, I don't disagree with that.'
Stevens said in a prepared statement earlier that the higher-than-expected exchange rate ''has been a relevant factor in the setting of interest rates''.
''It is not that interest rates are seeking a particular exchange rate response, but they are being set with a recognition of the exchange rate's effect on the economy,'' he said.
''It is too high ... on the best metrics that I have available to me, but we are not talking 50 per cent,'' he said, adding that it was ''a bit surprising it hasn't come down''.
''The evidence of history is that if it is overvalued by a long way it is going to come down.''
Stevens' comments contrasted with Reserve Bank of New Zealand (RBNZ) Governor Graeme Wheeler, who said on Wednesday that the New Zealand dollar was significantly overvalued.
Wheeler said in a speech in Auckland that there were no simple ways to lower the exchange rate, and ruled out quantitative easing, as his country was not experiencing the same economic struggles as the United States and European countries.
He added that quantitative easing by major economics - one of the factors that has seen the Australian dollar remain attractive to investors - was not expected to end in the near future.
'I hope to live to see the day when monetary policies in major economics get normalised,' Stevens said.
'If somebody said the current approach to policy in the major countries is likely to go on for a while, I don't disagree with that.'
Stevens said in a prepared statement earlier that the higher-than-expected exchange rate ''has been a relevant factor in the setting of interest rates''.
''It is not that interest rates are seeking a particular exchange rate response, but they are being set with a recognition of the exchange rate's effect on the economy,'' he said.
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