Finance Minister Grant Robertson says the government has pulled back on spending. Photo: RNZ / Angus Dreaver
Finance Minister Grant Robertson says New Zealand is "well positioned" to weather a turbulent time as the dollar falls while inflation is pegged to stay up for longer.
The NZ dollar has already fallen 19 percent in the past six months against the US dollar and has continued its slide today.
It is trading at about 58 point 38 cents, up slightly on a near 13-month low that it reached earlier this morning.
Robertson told Morning Report in this situation "imported goods potentially can cost a little bit more".
Exporters, however, were "potentially going to be able to make greater profits".
"But it's a very volatile and uncertain situation."
He said the US Treasury was making decisions on its interest rates that was "leading a lot of those who speculate on currencies back to the US dollar. That has an impact on virtually every currency in the world, including the New Zealand dollar."
"Global uncertainty and turbulence is challenging and difficult for the New Zealand economy."
Robertson said was Zealand was well positioned to deal with a volatile environment.
"We've got low unemployment, low public debt, we've had reasonable economic growth over the period of Covid and we're as well positioned as anybody is coming out of there, but it doesn't stop it being challenging for people.
"So we've got to continue to work with our exporters, our importers, work with New Zealand families and households to get through what is a turbulent time."
He said that would mean inflation went up, but supply chain constraints seen during the pandemic were now diminishing.
"While some of the goods that are being purchased internationally and imported into New Zealand, the price of them will go up, the price of getting them here is starting to come down, so there are some countervailing things for inflation.
"The Reserve Bank and others have been clear that inflation will stay higher than it has been in the recent past for a longer period of time."
He said government spending was being pulled back to the "normal" of about 30 percent of GDP.
"We're going to continue to work hard to make sure that we're supporting both households and businesses with strong economic policy."
UK financial environment 'not looking great'
Over in the UK, the pound has crashed to a record low against the US dollar, as markets react to the UK's biggest tax cuts in 50 years.
The plunge of nearly 5 percent, came during trading in Asia and Australia, before recovering slightly as European traders came online.
Former Bank of England deputy governor Sir John Gieve told Morning Report the new Liz Truss government "has come in denouncing the Treasury orthodoxy, the Abacus economics, the obsession with keeping track of the public finances".
"They thought there was more room to raise borrowing, than perhaps their officials will have been advising them."
He said the UK government's move showed "a great degree of confidence ... which will cost them a lot of money".
"What the government was hoping was that it would be able to stop the recession that's already developing in the UK, get a bit of growth back into the market by borrowing heavily in making some tax cuts and of course, capping energy prices.
"The cap on energy prices will help households. It won't make them better off than they are today, but it will save them from another big cost tomorrow.
"But if interest rates go up faster and further, and inflation is higher because of a lower pound, then that all eats into household budgets and mortgage payments ... it's not looking great at the moment."
The Bank of England said it would not hesitate to raise interest rates by as much as needed to return inflation to the 2 percent target.
