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January 19th 2006

New Zealand Dollar tied to bond issuance

For years, New Zealand has been home to the highest interest rates in the first world. Accordingly, it has had very little difficulty financing massive budget deficits, as foreigners have been all too eager to earn high returns lending it money. However, the government has become increasingly concerned that it may have issued too much debt, warning the Japanese government that further issuance could threaten the stability of the New Zealand Dollar. Basically, the bonds have significantly increased the amount of New Zealand currency in circulation, which could lead to inflation. If the law of purchasing power parity holds, the New Zealand Dollar will move in the opposite direction as prices. AFX News Limited reports:

The Kiwi is ‘near to the top of most people’s lists of things to sell this year’, with interest rates expected to fall.

Read More: NZealand dollar slumps as govt holds talks with Japan on uridashi bonds

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Posted by Adam Kritzer | in Exotic Currencies, Politics & Policy | No Comments »

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