Stable SUS forecast

Press, 27 January 1988, Page 33

Stable SUS forecast

NZPA-AAP Bonn Bundesbank president, Mr Karl Otto Poehl, said he saw good chances of the United States dollar stabilising at current levels, partly because it had already almost halved in value against the mark. Mr Poehl said there were signs the U.S. Administration believed that a further fall in the dollar was not in the interests of the United States. He noted that the U.S. had joined the December currency stability accord between the Group of Seven (G-7) leading industrial nations with open market intervention to support the dollar and with steps to reduce its budget deficit. Mr Poehl said a further dollar fall would lead to higher interest rates in the United States, given the close relationship between the currency and rate levels. “The larger the fall in the dollar, the higher the interest rate rise,” Mr Poehl said he based his relatively optimistic judgment about the dollar on signs that the U.S. economy was now much more robust and competitive following the dollar’s drop over the past two years. Fears of inflation following the October share crash had not materialised. Mr Poehl said another factor supporting his view that the dollar would stabilise was that U.S. exports had risen 30 per cent in real terms in the year to November, 1987.

But the U.S. current account and trade deficits had not yet shown large reductions in nominal terms as the benefits of the lower dollar were still being assimilated.