Res. Bank in open market operations

Press, 16 August 1984, Page 22

Res. Bank in open market operations

PA Wellington The Governor of the Reserve Bank, Mr Spencer Russell, has announced a series of measures involving the selling, trading, and discounting of Government securities by the bank. First, the bank will begin dealing this week on a regular basis in the Government securities secondary market

Initially’ it is proposed that the bank will operate mainly on a selling basis in shorter term stocks. As experience is developed in this type of operation it will expand dealing activity to include both buying and selling transactions, according to the circumstances, with the aim of ensuring that the level of liquidity in the financial system is adequate for settlement purposes, but is only supplied at a price which is consistent with the over-all stance of monetary policy. Mr Russell said that, although the bank’s dealings are most- likely to be conducted with the regular dealers in Government securities, it would not re-

strict its activity to this group exclusively. However, although the bank will be prepared to transact with anyone, a minimum individual “parcel” size of $1 million will be applied, which may limit the number of participants, he said.

The bank will normally announce in advance details of the Government securities it will be prepared to buy or sell and will also indicate from time to time the trading stance likely to be adopted by the bank.

The initial intention is to sell $l5O-$2OO million of short dated stocks, maturing in 1985, during the next month, probably concentrated in the early part of this period.

Mr Russell also announced that, further to his statement on July 23, when the bank’s discount margins were increased, the bank’s discount window for Government securities is now open to all persons, as is access to the bank’s portfolio of Government securities with six months or less to maturity. This does not necessarily tin-

ply that the bank will sell from portfolio without limit, he said.

In the last year these facilities have .been available to trading banks only. The discount margins announced on July 23 are: • 1.0 per cent over selling yields for Government securities with 6 months or less to maturity; • 1.5 per cent over selling yields for Government securities with more than 12 months to maturity; and e A graduated scale between 1.0 per cent and 1.5 per cent for securities maturing from 6 to 12 months.

selling yields for securities with six months or less to maturity range from 7.2 per cent at one day to 7.8 per cent at 91 days and 7.9 per cent at 182 days.

Mr Russell also indicated - that the possibility of proceeding with a Treasury Bill tender to replace the existing “tap” issue system is again under active investigation.

The market will be consulted in the course of this investigation and kept informed of decisions on this and any related matters, he said.