Real Exchange Rate Impacts on New Zealand Forestry Export Competitiveness

Authors: David Evison
Publication: New Zealand Journal of Forestry, Volume N.Z.J.For. 2010, Issue N.Z.J.For. 55(3) 2010, pp 27-29, Nov 2010
Publisher: New Zealand Institute of Forestry

Abstract: Introduction The commercial forestry sector is a major contributor to the New Zealand economy, with forestry products being the third-largest merchandise export category by value. Plantation resource projections (Ministry of Agriculture and Forestry, 2010) highlight potential for significant additional harvest, based on trees already in the ground, but not yet of harvestable age. New Zealand already exports about 70% of the total harvest of plantation wood, so an increase in forestry’s contribution to the New Zealand economy depends on increasing exports, and therefore export competitiveness. A competitive and profitable industry will attract funds to expand processing capacity and develop new markets and products. The export competitiveness of the forestry sector is affected by a number of factors, including the monetary policies implemented by the Reserve Bank of New Zealand (RBNZ), and New Zealand’s trading partners. Monetary policy refers to the specific activities of central banks, as well as the system used to determine exchange rates and control international capital flows. The New Zealand Reserve Bank is responsible for maintaining inflation within a band of 1-3%, and the policy instrument to achieve this is the Official Cash Rate. Through this instrument, the RBNZ influences interest rates, exchange rates and economic growth to meet its inflation target (RBNZ, 2007).
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