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Clarification: RBNZ currency intervention

02 April 2004 10:00AM
The Reserve Bank of New Zealand advise that some aspects of the report here on Wednesday in respect to the central bank's new option to raise finance for FX intervention purposes were wrong.Our report on Wednesday said that the RBNZ would receive only two out of three requested doses of additional funding from the New Zealand government.The RBNZ say this isn't so; and that the New Zealand cabinet endorsed all of the RBNZ's proposals encompassing increased crisis foreign reserves, additional capital for the reserve Bank and additional capacity to raise finance for FX intervention purposes.In addition the RBNZ has asked for capacity to acquire more than the minimum amount of crisis reserves for when intervention is required, and the government agreed to that as well. Our report also noted that the background documents published did not make it clear whether or not the central bank persuaded the government to adopt a fourth element of the funding strategy, which was to allocate New Zealand's current IMF quota and the Debt Management Office's foreign exchange holdings a combined NZ$1.4 billion - for the bank's unambiguous use as foreign reserves assets when needed.The RBNZ say the government also accepted this and this has been included in the Bank's request for additional finance to bring total crisis reserves to the new minimum level over the next four years. Currently the RBNZ has around NZ$3.7 billion in reserves; Treasury holds around NZ$1.4 billion which will be made available for the bank's use when required and an additional NZ$1.9 billion will be accumulated over time; which leads to the target of NZ$7 billion.There's a stack of background papers on this, released into the public domain on Tuesday. The government's announcement is here.And the RBNZ papers are all here, of which this one might be the most interesting, and is the basis of our original report.

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