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

The Reserve Bank of New Zealand is continuing to buy foreign currency assets to give it more firepower, should it need to intervene in the market during a crisis.

The central bank sold a whopping $259 million of New Zealand dollars in March to buy assets, such as government bonds, linked to other currencies.

The sale marked the second-largest foreign exchange-related transaction (or series of transactions) the Reserve Bank (RBNZ) has engaged in during a month in just over a decade.

 NZ Herald Wellington business editor Jenee Tibshraeny explains further.

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Episode Transcript

Speaker 1 (00:00):
The Reserve Bank has been busy buying up foreign currency assets.
It recently sold about two hundred and fifty nine million
New Zealand dollars to lift its intervention capacity to a
whopping twenty seven billion dollars. Now genetives Traineye, The Herald's
Wellington business editor has been taking a look, hijename. Hey,
give me a bit of context. How big is about
two hundred and sixty million dollars?

Speaker 2 (00:20):
Look, that's that's pretty big, and it's sort of maybe
in the realm of the cost of school lunches.

Speaker 1 (00:28):
Do they regularly buy that much?

Speaker 2 (00:30):
Yeah, So, so for the Reserve Bank to actually, we'll
just take this backstep. So the Reserve Bank sold two
hundred and fifty nine million dollars of New Zealand dollars
in March. That is the second highest amount that it
has sold in more than a decade. So the reason
it's getting involved in currency markets selling New Zealand dollars

(00:53):
is so that it can get money to buy foreign
currency assets. Now, it's quite a normal thing for a
central bank to have a large balance sheet, have a
war chest of foreign currency assets, so that if there
is a financial crisis, it can possibly intervene. Now, the
threshold for intervention is really high. There's a framework in

(01:15):
place that the Reserve Bank has agreed to with the government,
you know, for what the conditions would need to be
if it did intervene. But I think it is pretty
significant that, you know, in one month, that it made
such a large transaction to try to I guess, give it,
give it, give itself a bit more muscle.

Speaker 1 (01:32):
Now is this is not necessarily a response to or
an indication that the thinker crisis is coming, right, This
is something that was agreed with Grant Robertson by memory.

Speaker 2 (01:40):
Yeah, that's right. So the Reserve Bank has spent the
past two years, you know, buying and selling assets to
bolster its foreign currency intervention capacity. Now it's actually more
than doubled that capacity in the past two years to
nearly twenty seven billion dollars. That's huge. So the Reserve

(02:02):
Bank agreed with Grant Robinson, look, it's time to update this.
We need to give ourselves a bit more strength. The
move that we saw in March was just part of this,
but it was a particularly large move. Now I asked
the Reserve Bank, I said, look, what's happened here? Because
I mean the timing of it is interesting. There's so
much volatility in markets at the moment you have to think, well,

(02:22):
why did they buy so much? Sorry, why did they
sell so much and then buy so much foreign currency
assets in one month? The bank wouldn't say, but it
did point me to something where it said that if
the New Zealand dollar is particularly strong, that might prompt
it to sell, whereas if it's weak, it might prompt
it to buy. So that's a thing. But then I

(02:46):
took to an expert and actually that the New Zealand
dollar was not particularly strong in March when it made
that big sale. So it has left me and others
who are more in the know than I am scratching
our heads over what the rationale was. You know, it
does make you think it would be nice if the
Reserve Bank was a little bit more transparent, because you know,

(03:10):
while it can't give away its hand and say to
the market, we're going to do this intervention, because then
people could be better against it. Yeah, it is important
that it is, in my view, transparent with us because
we're talking very large sums of money and there's always
a risk when its balance sheet is so big that
these these assets fall in value and that could end
up costing taxpayers. So I think there is a case

(03:34):
to be made for a wee bit more transparency from
the bank.

Speaker 1 (03:37):
Yeah, a bit of explanation. Hey, that's fascinating, Jennae, thanks
very much, appreciated this genship trainee, The Herald's Wellington Business editor.
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