Reserve Bank Foreign Exchange Intervention Principles: 30 March 2004

The Reserve Bank of New Zealand Bulletin, June 2004 | Go to article overview

Reserve Bank Foreign Exchange Intervention Principles: 30 March 2004


The Reserve Bank today released a letter from the Bank to the Minister of Finance outlining how it intends to undertake foreign exchange market interventions. The letter is attached.

This follows the Reserve Bank recommending, and the Government resolving, that the Reserve Bank should have the financial capacity to undertake foreign exchange interventions designed to influence the value of the exchange rate.

Reserve Bank Governor Alan Bollard commented "This letter lays out the objectives and parameters that the Bank will apply when making decisions about foreign exchange intervention. An important consideration in preparing these principles was the preservation of the Reserve Bank's operational independence in relation to the implementation of monetary policy. In issuing this letter, the Reserve Bank is continuing its long standing practice of being transparent and accountable for its decisions."

In addition, the Reserve Bank and the Treasury later today will be placing on their websites (www.rbnz.govt.nz & www.treasury.govt.nz) their recent advice to the Minister of Finance on these matters.

Letter to Dr Cullen on foreign exchange market intervention policy under section 16 of the Reserve Bank of New Zealand Act 1989

30 March 2004

Hon Dr Michael Cullen

Minister of FinanceParliament Buildings

Wellington

Dear Dr Cullen

FOREIGN EXCHANGE MARKET INTERVENTION POLICY UNDER SECTION 16 OF THE RESERVE BANK OF NEW ZEALAND ACT 1989

The Reserve Bank has been provided with the financial capacity necessary to undertake foreign exchange market interventions designed to influence the level of the exchange rate. The Bank has operational independence, under section 16 of the Reserve Bank of New Zealand Act 1989 (the Act), to intervene in the foreign exchange market. This letter sets out the parameters within which those decisions will be taken, and the associated reporting and accountability arrangements.

1 Policy objectives

(a) Foreign exchange intervention under section 16 of the Act is for the purpose of influencing the level of the exchange rate to reduce exchange rate variability when the exchange rate is exceptionally and unjustifiably high or low, consistent with section 8 of the Act, as expressed through the Policy Targets Agreement (PTA), and with such other of the Bank's functions and obligations under the Act as may be appropriate.

(b) (Foreign exchange intervention under section 17 of the Act, for the purpose of restoring liquidity in a period of foreign exchange market dysfunction, is treated separately in a standing directive from the Minister of Finance. …

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