29 Apr 2011

Reserve Bank makes transaction in currency markets

1:40 pm on 29 April 2011

The Reserve Bank last month made its single biggest monthly transaction in the currency markets since it intervened to bring the New Zealand dollar down three years ago.

BNZ economist Craig Ebert says $500 million reduction in the central bank's unhedged foreign exchange reserves in March may have been to reduce its exposure to further strength in the New Zealand dollar.

Mr Ebert says the Reserve Bank built up the reserves in 2007 and 2008 when it sold New Zealand dollars in an effort to bring down the value of the kiwi.

He says the bank has made hundreds of millions in profits since then from its unhedged foreign exchange reserves.

But Mr Ebert says the kiwi's strong form this year has exposed the central bank to unrealised losses from that position.

He says it may have taken the opportunity to reduce that exposure and sell some of it foreign reserves after the New Zealand dollar fell in the wake of the Christchurch earthquake and Japanase tsunami.

A spokesperson for the Reserve Bank says the sell-off in March was to help bring the bank's unhedged foreign exchange position nearer to its target of $1 billion.