Reserve Bank intervention opens door to huge risk

Media statement - Wednesday, April 7th, 2004

Reserve Bank intervention opens door to huge risk

Parliament's thumbs up yesterday to the Reserve Bank's intervening in currency markets opens the door to further enormous risk, the Employers & Manufacturers Association (Northern) says.

"Empowering the Reserve Bank to buy and sell the New Zealand dollar the hope of influencing the value of the currency is a fraught and risky business," said EMA's chief executive, Alasdair Thompson.

"The risk is that a currency speculator will call the Reserve Bank's bluff at a critical time when the Bank has decided the currency is too low or high, and force it to play its hand.

"If the Bank ends up losing, at the tax payers' expense, Dr Cullen's multi billion dollar defence fund could vanish in a twinkle.

"The Bank will need to weigh with extreme care this extra dimension, and its madness to think the Bank could have any significant impact on the value of the Euro, Yen or US dollar.

"The last thing New Zealand can afford is for a future finance minister to pressure a Reserve Bank governor into buying or selling of the dollar as happened just 20 years ago."

ENDS

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