Reserve Bank sells net $256 mln in April, Wheeler prepared to 'scale up' intervention

Thursday 30th May 2013

The Reserve Bank sold a net $256 million into foreign exchange markets last month as it looked to trim the kiwi dollar's high points in April, and its governor Graeme Wheeler is willing to ramp up his currency intervention as long as it works.

The bank reduced its foreign currency intervention capacity to $8.48 billion in April from $8.7 billion a month earlier, RBNZ figures show. That adds to a net sale of $199 million of New Zealand dollars in December and $64 million in November.

The release comes after Wheeler told the Institute of Directors this morning that the bank has been intervening in recent months and is "prepared to scale up our foreign exchange activities if we see opportunities to have greater influence."

The kiwi rose as high as 86.77 US cents in April, and has shed 6.6 percent since then, recently trading at 80.95 cents. On a trade-weighted basis, it climbed as high as 79.39 in April, and has dropped 3.8 percent to 76.35.

Earlier this month Wheeler told Parliament's finance and expenditure committee the bank had intervened to take the tops off rallies. The bank last confirmed an intervention in mid-2007 when it sold a net $2.36 billion over three months, and sold a net $1.64 billion over five months in mid-2008 when the kiwi dollar plunged in the lead-up to the global financial crisis.

Wheeler has to contend with the high kiwi limiting imported inflation and holding back export receipts, while at the same time the low interest rate environment is stoking the residential property market, threatening to create inflationary pressures.

The consumers price index was 0.9 percent in the first quarter, just short of the central bank's target band of between 1 percent and 3 percent.

The central bank is reluctant to hike the official cash rate from its record-low 2.5 percent as it may add to the attraction of the kiwi by offering higher yields.

Traders expect 29 basis points of hikes to the OCR over the next 12 months, based on the Overnight Index Swap curve.

BusinessDesk.co.nz

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