Friday, 16 Apr 2021

Dollar soars as S&P upgrades NZ credit rating on strong recovery

New Zealand’s sovereign currency ratings have been raised by international agency S&P on the basis of a stronger-than-expected recovery.

The kiwi dollar rallied on the news to a 34-month high at US73.38c.

“New Zealand is recovering quicker than most advanced economies because the country has been able to contain the spread of Covid-19 better than most others,” S&P Global Ratings said in a statement this afternoon.

“This provides us with better clarity over the extent of the pandemic’s damage to the Government’s balance sheet.”

It has raised its foreign currency sovereign ratings to AA+/A-1+ from AA/A-1+ and its local currency sovereign ratings to AAA/A-1+ from AA+/A-1+.

S&P said the fiscal outlook for New Zealand was now stable.

“While downside risks persist, such as another outbreak, we expect New Zealand’s fiscal indicators to recover during the next few years,” the report said.

“Reflecting substantial fiscal support, New Zealand’s net general government debt is much higher than in the past but remains lower than most of its peers.”

“We believe that New Zealand’s relatively better management of the pandemic means that its credit metrics are in a good position to weather potential deterioration associated with further negative pressures, including from a possible weakening of the real estate market, at its current rating level.”

S&P said its ratings on New Zealand reflected the country’s sound and stable institutional settings, such as monetary policy flexibility and economic wealth.

These strengths provide the country with flexibility at the “AA+” rating level to offset potential risks related to its large external imbalances, high household and agriculture sector debt, dependence on commodity income, and financial system stability, including elevated property prices.

The report also included strong forecasts for local economic growth.

“We forecast real GDP to grow at about 3.2 per cent per year and real GDP per capita at about 2.2 per cent per year between fiscal years 2022 and 2024.”

Downside risks persisted, such as another outbreak, geopolitical tensions between major trading partners, and delays administrating an effective vaccine, it said.

“Furthermore, travel restrictions will continue to severely limit tourism and international student flows as well as migration levels, dragging on short-term population growth.”

But overall “New Zealand’s monetary flexibility, wealthy economy, and institutions are conducive to swift and decisive policy actions and offset the country’s external imbalances.”

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