Bank carries high forward-cover cost

Press, Volume CXIII, Issue 38183, 24 March 1973, Page 13

Bank carries high forward-cover cost

<N.Z. Press Association—Copyright) SYDNEY, March 22. On February 9, when the Reserve Bank of Australia suspended forward cover, its forward net risk was sl6oom and the latest statistical bulletin from the bank reveals the considerable cost of subsidising exporters through unrealistically low forward exchange rates, the “Sydney Morning Herald” economic correspondent says.

The bank’s bulletin says that the over-purchased forward position had nearly doubled to s9oom in the six months to June when facilities were temporarily suspended after the floating of sterling. The bank’s over-purchased forward position continued at a high level during the latter half of 1972, reaching more than sl3oom on December 22. despite the raising of the forward discount on the United States dollar (the basis for forward cover arrangements) from 1 per cent to 4 per cent. After the revaluation of the Australian dollar on December 23 the United States dollar discount was reduced to 1 per cent again and until the middle of January demand fell. However, after renewed speculation, demand rose sharply. The forward discount was

raised, but only to 2 per cent and by the close of business on February 9 the outstanding net risk had risen to sl6oom. Since the devaluation of the United States dollar and the floating of other currencies the bank has become a net forward seller, carrying the risk of a downward movement in the Australian dollar.

Through its low rate of forward exchange cover the bank has effectively subsidised Australian exporters on a considerable extent. The relaxation of controls on portfolio investment abroad by Australian residents has met with little response so far.

The relaxation was announced on September 26 and in its bulletin the bank said that the response so far had been modest.

Since September 26 approvals amounting to aboul lsl6m have been granted.