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The United States Federal Reserve and the Reserve Bank of New Zealand have agreed to work together to ensure local banks and other financial institutions can continue to access the US dollar funds they need if that becomes impossible through usual channels.
The central banks yesterday announced the establishment of a "temporary reciprocal currency arrangement" or "swap line" to address elevated pressures in US dollar short-term funding markets. The agreement was formalised after the Fed's Open Market Committee approved the Reserve Bank's request for a swap facility that will support the provision of US dollar liquidity to the New Zealand markets in amounts of up to US$15 billion ($26 billion).
This reciprocal currency arrangement has been authorised to April 30 2009, although the Reserve Bank says it is not needed immediately.
RBNZ spokesman Mike Hannah said the facility was similar to a number of liquidity measures put in place over the last year.
Reserve Bank deputy governor Grant Spencer said the facility was to provide an additional source of liquidity for the US dollar funding market.
Meanwhile, RBNZ data released yesterday shows that at least one bank has now drawn on the New Zealand dollar liquidity measures introduced over the past few months.
The RBNZ's Open Market Operations data shows $100 million worth of funding was drawn down from the RBNZ against securities that may include bank or corporate paper, local authority or state owned enterprise issued debt or residential mortgage backed securities.
- Additional reporting: agencies
