Aust, rating cut may aid N.Z.

Press, 31 August 1989, Page 40

Aust, rating cut may aid N.Z.

PA Wellington Foreign investors may look more favourably on New Zealand after New York-based Moody’s Investor Services on Wednesday cut Australia’s long-term debt credit rating from AA-1 to AA-2. It means New Zealand, with an AA-3 rating, is just one notch below Australia, analysts say. But with several economic indicators — especially the , balance of payments position — looking in better shape in New Zealand, large overseas investors could well channel more of their South Pacific investment portfolios to this side of the Tasman. That would be good news for the sharemarket and help reduce interest rates further. But some analysts said another possibility was that investors who regarded the trans-Tasman markets as closely-linked would consider moving their money out of the hemisphere. Much would depend on the way in which they now assessed the risk involved in Australasian investments. “The gap between the two countries is certainly narrowing,” said the Bank of New Zealand chief international economist, Mr Donal Curtin, adding there was a fine line between AA-2 and AA-3 rat-

ings. "We are starting from a worse position than them and getting better and they are starting from a better position and getting worse,” Mr Curtin said.

"The principal difference is the balance of payments. We are now around the breakeven point, while they are in substantial deficit.”

Against many predictions, the Kiwi dollar had held up well, despite New Zealand interest rates falling and Australian rates increasing, he said.

Australia’s downgrading had been widely expected. Apart from an initial flurry in the foreign exchange markets, which saw the Australian dollar dip 40 points against the United States dollar within a few minutes, the financial markets remained fairly calm. The Kiwi dollar gained Austo.sc to close at Aust77.B3c and closed 10 points up against the greenback at U558.98c. Interest rates — both in Australia and New Zealand — barely moved on Wednesday, with November, 1993, government stock rates closing at 12.01% and 90-day bank bills finishing slightlv higher at 13.05%.