The International Monetary Fund (IMF) estimates the New Zealand dollar is overvalued by 10% to 25% but says a free floating exchange regime is the right way to go for the country.
Part of the overvaluation of the NZ dollar may be temporary and the exchange rate may depreciate as the interest rate differential narrowed with eventual tightening by the United States Federal Reserve, according to Stuff.co.nz.
The report says the IMF projected the current account deficit to widen to over 8% of gross domestic product (GDP) by 2015.
IMF's annual assessment of New Zealand's economy also repeated several points made by IMF Asia and Pacific division chief Ray Brooks this week at the end of the assessment, that key vulnerabilities continued to be levels of household debt and external debt.