Latest / Best of Business / Jenee Tibshraeny: NZ Herald Wellington business editor on the Reserve Bank buying up foreign currency assets

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Jenee Tibshraeny: NZ Herald Wellington business editor on the Reserve Bank buying up foreign currency assets · Best of Business

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  Speaker 2: The Reserve Bank has been busy buying up foreign currency assets.
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  Speaker 2: It recently sold about two hundred and fifty nine million
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  Speaker 2: New Zealand dollars to lift its intervention capacity to a
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  Speaker 2: whopping twenty seven billion dollars. Now Genetibstrainey, the Herald's Wellington
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  Speaker 2: Business editor, has been taking a look hijename. Hey, he
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  Speaker 2: give me a bit of context. How big is about
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  Speaker 2: two hundred and sixty million dollars?
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  Speaker 3: Look, that's that's pretty big and it sort of maybe
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  Speaker 3: in the realm of the cost of school lunches.
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  Speaker 2: Do they regularly buy that much?
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  Speaker 3: Yeah, So so for the Reserve Bank to actually, we'll
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  Speaker 3: just take this backstep. So the Reserve Bank sold two
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  Speaker 3: hundred and fifty nine million dollars of New Zealand dollars
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  Speaker 3: in March. That is the second highest amount that it
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  Speaker 3: has sold in more than a decade. So the reason
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  Speaker 3: it's getting involved in currency markets selling New Zealand dollars
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  Speaker 3: is so that it can get money to buy foreign
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  Speaker 3: currency assets. Now, it's quite a normal thing for a
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  Speaker 3: central Bank to have a large balance sheet, have a
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  Speaker 3: war chest of foreign currency assets, so that if there
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  Speaker 3: is a financial crisis, it can possibly intervene. Now, the
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  Speaker 3: threshold for intervention is really high. There's a framework in
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  Speaker 3: place that the Reserve Bank has agreed to with the government,
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  Speaker 3: you know, for what the conditions would need to be
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  Speaker 3: if it did intervene. But I think it is pretty
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  Speaker 3: significant that you know, in one month, that it made
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  Speaker 3: such a large transaction to try to I guess, give it,
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  Speaker 3: give it, give itself a bit more muscle.
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  Speaker 2: Now is this is not necessarily a response to or
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  Speaker 2: an indication that the think a crisis is coming, right,
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  Speaker 2: This is something that was agreed with Grant Robertson by memory.
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  Speaker 3: Yeah, that's right. So the Reserve Bank has spent the
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  Speaker 3: past two years, you know, buying and selling assets to
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  Speaker 3: bolster its foreign currency intervention capacity. Now it's actually more
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  Speaker 3: than doubled that capacity in the past two years to
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  Speaker 3: nearly twenty seven billion dollars. That's huge. So the Reserve
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  Speaker 3: Bank agreed with Grant Robertson, Look, it's time to update this.
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  Speaker 3: We need to give ourselves a bit more strength. The
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  Speaker 3: move that we saw in March was just part of this,
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  Speaker 3: but it was a particularly large move. Now I asked
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  Speaker 3: the Reserve Bank, I said, look, what's happened here, because
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  Speaker 3: I mean the timing of it is interesting. There's so
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  Speaker 3: much volatility in markets at the moment you have to think, well,
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  Speaker 3: why did they buy so much? Sorry, why did they
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  Speaker 3: sell so much and then buy so much foreign currency
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  Speaker 3: assets in one month? The bank wouldn't say, but it
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  Speaker 3: did point me to something where it said that if
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  Speaker 3: the New Zealand dollar is particularly strong, that might prompt
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  Speaker 3: it to sell, whereas if it's weak, it might prompt
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  Speaker 3: it to buy. So that's a thing. But then I
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  Speaker 3: took to an expert and actually that the New Zealand
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  Speaker 3: dollar was not particularly strong in March and it made
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  Speaker 3: that big sale. So it has left me and others
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  Speaker 3: who are more in the know than I am scratching
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  Speaker 3: our heads over what the rationale was. You know, it
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  Speaker 3: does make you think it would be nice if the
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  Speaker 3: Reserve Bank was a little bit more transparent, because you know,
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  Speaker 3: while it can't give away its hand and say to
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  Speaker 3: the market, we're going to do this intervention, because then
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  Speaker 3: people could be better against it. Yeah, it is important
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  Speaker 3: that it is in my view transparent with us because
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  Speaker 3: we're talking very large sums of money and there's always
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  Speaker 3: a risk when its balance sheet is so big that
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  Speaker 3: these these assets fall in value and that could end
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  Speaker 3: up costing taxpayers. So I think there is a case
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  Speaker 3: we made for wee bit more transparency from the bank.
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  Speaker 2: Yeah, a bit of explanation. Hey, that's fascinating, Jenay, thanks
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  Speaker 2: very much. Appreciated the genship training the Heralds Wellington Business Editor.
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