New Zealand's interest rates could stay lower for longer as Reserve Bank governor Graeme Wheeler considers intervening further in the currency market to try to reduce the kiwi's value.
In a speech yesterday, Mr Wheeler confirmed the central bank had undertaken some foreign exchange transactions in recent months to take the heat out of the exchange rate.
The Reserve Bank would boost the size of that intervention if it saw the opportunity.
''We can only hope to smooth the peaks off the exchange rate and diminish investor perceptions that the New Zealand dollar is a one-way bet, rather than attempt to influence the trend level of the kiwi,'' Mr Wheeler said in speech notes.
''But we are prepared to scale up our foreign exchange activities if we see opportunities to have greater influence.''
Westpac senior economist Felix Delbruck said it appeared the Reserve Bank was keen to try out its macroprudential tools and might well do so before it made any change to the official cash rate (OCR).
''We remain sceptical that macroprudential tools will, in fact, have any significant impact on the housing market.''
The most likely course was that the Reserve bank would deploy the macroprudential tools, wait and see how the inflation outlook changed, and eventually ''bite the bullet'' and raise the OCR, he said.
The dollar fell to US80.95c from US81.33 after the speech.
The Reserve Bank sold a net $256 million into the currency markets last month, adding to the $199 million of New Zealand dollars in December in the course of its normal market operations and the $64 million sold in November, according to the central bank's figures.
That was the largest net monthly sale since mid-2008, when the kiwi plunged before the financial crisis.
ASB economist Christina Leung said New Zealand's interest rate differential with the major economies would probably remain a support for the New Zealand dollar for the next two years.
''The speech today highlights the challenges faced by the Reserve Bank and indicates the central bank's increasing willingness to draw on the full array of policy instruments to address these challenges. We continue to expect the Reserve Bank to first lift the OCR in March 2014.''
