23 Oct 2013
RBA gets a one-off $8.8bn buffer fund injection
FXstreet.com (Barcelona) - The Reserve Bank of Australia has finally seen its wishes of expanding its reserve fund come true after Australian Treasurer Joe Hockey agreed to inject $8.8 billion, capital aimed to cover losses on the Bank's FX holdings.
The decision will undoubtedly help the RBA to carry out the necessary monetary policy and foreign exchange operations. The beefed up fund will allow to increase assets at risk to 15%.
Reserve Bank governor Glenn Stevens has been long advocating to the idea of a further injection in the Australian Central Bank, after, as Jacob Greber, Economics correspondent at AFR notes, "the buffer fund was drained as a result of losses on the value of its foreign exchange holdings when the Australian dollar rose on the post-global financial crisis recovery."
Mr Hockey said “The government is determined to ensure that all of our institutions are fully equipped for whatever challenges lie ahead. This grant will enhance the Bank’s capacity to conduct its monetary policy and foreign exchange operations."
Mr. Hockey added: “This injection of funds puts beyond any doubt the Reserve Bank’s continued ability to perform its core monetary policy and foreign exchange functions, in an environment of heightened financial market volatility.”
The fact that the RBA will enhance its capacity on foreign exchange operations raises the prospects of a potential intervention on the Australian Dollar should the currency continue to appreciate further, an outcome clearly unwanted by policy-makers as it hurts exporters and puts a brake on the Australian economic recovery. If one was fearful about a potential RBA intervention on the Aussie, these news should be a reminder the the RBA will not hesitate to press the sell button if necessary.
The decision will undoubtedly help the RBA to carry out the necessary monetary policy and foreign exchange operations. The beefed up fund will allow to increase assets at risk to 15%.
Reserve Bank governor Glenn Stevens has been long advocating to the idea of a further injection in the Australian Central Bank, after, as Jacob Greber, Economics correspondent at AFR notes, "the buffer fund was drained as a result of losses on the value of its foreign exchange holdings when the Australian dollar rose on the post-global financial crisis recovery."
Mr Hockey said “The government is determined to ensure that all of our institutions are fully equipped for whatever challenges lie ahead. This grant will enhance the Bank’s capacity to conduct its monetary policy and foreign exchange operations."
Mr. Hockey added: “This injection of funds puts beyond any doubt the Reserve Bank’s continued ability to perform its core monetary policy and foreign exchange functions, in an environment of heightened financial market volatility.”
The fact that the RBA will enhance its capacity on foreign exchange operations raises the prospects of a potential intervention on the Australian Dollar should the currency continue to appreciate further, an outcome clearly unwanted by policy-makers as it hurts exporters and puts a brake on the Australian economic recovery. If one was fearful about a potential RBA intervention on the Aussie, these news should be a reminder the the RBA will not hesitate to press the sell button if necessary.