RBA 'not convinced' on intervention

Reserve Bank governor Glenn Stevens says he remains "open-minded" about using foreign exchange intervention to weaken Australia's currency.

Reserve Bank governor Glenn Stevens says he remains "open-minded" about using foreign exchange intervention to weaken Australia's currency.

He also says the dollar remains higher than its medium-term average suggests it ought to be.

However, Mr Stevens has defended the RBA's decision not to intervene in the currency market so far - despite the dollar failing to fall with economic fundamentals.

In a speech at an Australian Business Economists dinner on Thursday night, he said he remained unconvinced that the benefits of such "large-scale intervention" would have outweighed the costs.

"In this episode so far, the bank has not been convinced that large-scale intervention clearly passed the test of effectiveness versus cost," Mr Stevens said.

"But that doesn't mean we will always eschew intervention. In fact we remain open-minded on the issue.

"Our position has long been, and remains, that foreign exchange intervention can - judiciously used in the right circumstances - be effective and useful.

"It can't make up for weaknesses in other policy areas, and to be effective it has to reinforce fundamentals, not work against them. Subject to those conditions, it remains part of the tool kit."

Mr Stevens told a room packed with the country's most respected economists that Australia had been well served by a floating exchange rate.

The Reserve Bank has been trying for months now to "jawbone" the Australian dollar lower.

The dollar has remained stubbornly above US90ยข - which is higher than the long-term average - despite the terms of trade dropping from historical highs.

On Wednesday, RBA assistant governor Guy Debelle said the US Federal Reserve held the key to a lower Australian dollar, because its multibillion-dollar bond-buying program was acting to weaken the US dollar against Australia's currency.

Mr Stevens said despite the problems an elevated dollar had created for Australia in recent years, the country remained "best-served" by a floating exchange rate.

InvestSMART FORUM: Come and meet the team

We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles