Looking through old IMF article IV consults, I re-read the concluding statement from their Kiwi mission (April 2012).
It names four key external risks:
1/ Lower export demand (check, both Australia and China have under-shot)
2/ Worsened terms of trade (check, the milk price has been mooving)
3/ Increased cost of external funding (yep … See CDS)
4/ Roll-over risk in wholesale funding markets (not yet an issue)
And the first line of defence is a rate cut:
The authorities have policy space to respond to near-term shocks, with monetary policy serving as the first line of defense. The RBNZ has the scope to lower interest rates and loosen monetary conditions to help buffer against a downside scenario
I doubt that anyone would disagree as there is no freezing of the credit markets at present. In other words monetary policy can do its job
NZ does show what happens if you wait too long to use fiscal stimulus (as does Canada) when it is needed.
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