RBNZ and Fed Enter into a $15B Swap Line

The US Federal Reserve plans to provide a $15B swap line to the RBNZ. The swap agreement will remain effective until April 30. The purpose of the swap is to address pressures in the USD short-term market, which has been correlated with a recent sharp rise in the USD against the NZD. The RBNZ said that there is no need for the swap facility right now. Additionally, an analyst at BNZ noted that the move could have a limited impact on the funding prospects for New Zealand banks because these firms need to raise NZD in order to fund their balance sheets. The analyst added that the move could have a favorable impact on the forward market.

The swap line between the Fed and RBNZ is similar to a swap agreement announced between the RBA and the Fed in September. Under this facility a total of $10B was initially provided and the swap was latter increased to $30B.

The NZ swap line announcement comes as some of the country's fund managers have faced difficulties due to the government's recently announced bank deposit guarantee program. Specifically, there are concerns among some money managers that the guarantee might lead to fund outflows. For instance, during the prior session, AXA NZ suspended NZ$225M worth of redemptions from three of its mortgage funds in a move to protect against potential outflows. Due to these concerns the NZ government today announced that it was mulling allowing some of the country's fund managers to receive coverage under the guarantee plan.

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