Is RBA printing money to weaken dollar?
A surge in foreign deposits with the Reserve Bank has sparked claims it may be printing money, in an attempt to take the heat out of the Australian dollar.
Central bank purchases of Australian dollars are seen as one reason for its strength, with up to 23 of the official institutions from around the globe including the currency in their portfolios.
In research published on Wednesday, UBS strategist Gareth Berry said there was “compelling” evidence to suggest the RBA had taken the unusual step of meeting central bank demand in direct off-market transactions, which would dampen the currency’s strength.
In the three months October, foreign central banks’ deposits at the Reserve have jumped by $848 million to more than $2 billion, the highest since early 2009. At the same time, the Reserve has lifted its foreign exchange reserves by almost exactly the same amount.
Mr Berry said these trends suggested the bank was effectively “printing” new Aussie dollars and supplying them to foreign central banks, which were then keeping the Aussie dollars on deposit at the RBA.
This would satisfy foreign central banks’ demand for Aussie dollars without forcing them to buy currency on the open foreign exchange market, where the dollar’s value is set.
‘‘The Reserve Bank of Australia may have recently begun printing Australian dollars to satisfy overseas currency demand from foreign central banks,’’ Mr Berry said, adding that the evidence was not conclusive.
‘‘If this is a genuine policy innovation, then it takes the RBA into uncharted territory.’’
While the Reserve does not comment on market intervention issues such as this, it has repeatedly tried to talk down the dollar in recent months.
On Tuesday it said the dollar was ‘‘higher than might have been expected, given the observed decline in export prices and the weaker global outlook,” but its decision to hold rates moved the currency higher.
The chief economist at HSBC and former RBA staffer, Paul Bloxham, also said there was a form of intervention occurring in the market, which was likely to continue while the dollar was causing serious problems for export industries.