At first glance, New Zealand appears to enjoy the same “hot money” problem as emerging economies such as Thailand. There, global investors have been driving the currency higher by flooding the country with money.
But the problem for New Zealand is that its own investors and consumers refuse to hold cash over anything else. The Reserve Bank in Auckland hiked its base rates once again this month. The tenth hike in three years, it took overnight yields on Kiwi Dollars to 7.50%, giving New Zealand the second highest rate of interest in the developed world after Iceland – a position it’s enjoyed for the last 7 years straight.
Yet still the Kiwis treat cash like an embarrassing friend they failed to ditch during their first year at college!