Bollard sells the bucks
Very pleased to hear the news tonight that our Reserve Bank has intervened in the currency market.
In order to prevent the speculators pushing the New Zealand dollar up to stupid levels, the Reserve Bank sold around 1.5 billion of the Kiwi, causing the dollar to fall from a post float high of US76.20c, back to US75.25c.
Even if the fall in the dollar is temporary, the exercise was totally worth it, as the currency speculators have been given a lesson that the New Zealand dollar can drop. The recent rise in the Official Cash Rate (OCR) to 8% created a situation that the late Bruce Jesson called a "one way bet". Speculators could buy Kiwi with almost certain expectation the value of the Kiwi would rise. This situation may be great for the bank balances of the speculators, but it is bad for the New Zealand economy, particularly for manufacturing.
National leader John Key used to be a currency trader.
Those who make a living from sucking the life out of other lifeforms are generally called leeches.
It is likely that Reserve Bank Governor Alan Bolland is expecting to increase the OCR again in a few months time, and he wants to discourage overseas currency traders from profiteering from his decisions.
Fairfax Media are claiming this is the first time in 20 years the Reserve Bank has intervened in the currency market in this way. About time. Some would say the action taken today by the Reserve Bank today is long overdue. It is a very small step towards regaining democratic control over our economy.
Update: Oliver has a good post on Bollard's action on Quest for Security.