New Zealand cb's reserves boosted

The increase of over 20% will raise existing reserves to NZ$7 billion, in line with the bank's request of February 9. A further increase in reserves to facilitate a "more active medium-term intervention capacity" at both the top and bottom of the exchange rate cycle remains undisclosed.

In recognition of the speed of movements in financial markets, the central bank has also been given the power to use up to SDR175m (US259m) without the finance minister's approval, should the finance minister or deputy be unavailable. The bank's capital will also be increased by NZ$0.6 billion to NZ$1 billion to cover possible losses from intervention.

The necessary changes to the Reserve Bank of New Zealand's funding agreement with the government will be voted on in parliament Tuesday. The legislature is expected to ratify the change in policy as the left-wing Green Party has said it will vote with the minority Labour-led government on the intervention issue.

Last month the New Zealand dollar hit a seven-year high of US$0.7102 against the U.S. dollar, which was a gain of 82% since its post 1985-float low of US$0.3898 which it hit in October 2000.

"These measures should assist the economy by tempering exchange rate volatility and will move New Zealand monetary management closer toward Australian practice," Cullen said.

"They are strongly supported by the government as they are consistent with the changes we have introduced to monetary policy since taking office in 1999," he said.

If purchases of foreign currency to repay foreign debt in the early 1990s are excluded the central bank has not intervened in the currency markets since 1985.