Finance Finance News RBA not ruling out $A intervention

RBA not ruling out $A intervention

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The Australian dollar is higher than it should be and the Reserve Bank of Australia is keeping an open mind about intervening to bring it lower, governor Glenn Stevens says.

Although the RBA has expressed concern about the high Australian dollar, the benefits of intervention do not outweigh the costs at this point, Mr Stevens said in a speech marking the 30th anniversary of the floating of the Australian dollar.

Intervention in the foreign exchange market would involve selling Australian dollars to buy foreign currency.

Mr Stevens said intervention had previously been used to try to avoid the currency moving downwards too quickly, and now that the reverse was occurring, the RBA was keeping its options open.

“Overall, 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 in the speech.

“But that doesn’t mean we will always eschew intervention.

“In fact we remain open-minded on the issue.

“It remains part of the toolkit.”

Mr Stevens said the Australian dollar was “currently above levels we would expect to see in the medium term”.

since the currency was floated, the market had generally moved the exchange rate to the right spot eventually, he said.

“At various times we have worried that the market was behaving irrationally, believing that the exchange rate should have been somewhere other than where it was. And sometimes we were right about that,” Mr Stevens said.

“Yet, looking back, on balance the evidence suggests, I think, that the market has mostly moved the exchange rate to about the right place, sooner or later.

“We sometimes didn’t like the pathway.

“But if I ask the question of whether I would have consistently done a better job setting that price, even had that been feasible (which it wasn’t), I don’t think I could confidently answer in the affirmative.”