RBA steers clear of $A intervention

24 Aug 2012, 3:44 pm   -   Source: AAP
(AAP)

(AAP)

The Australian dollar is slightly overvalued says the central bank but it has no plan to bring the currency down.

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The Australian dollar is probably overvalued but not dramatically so, says the nation's central bank.

Reserve Bank of Australia (RBA) governor Glenn Stevens said the local currency, which had spent most of the past year above the 100 US cent mark was priced "a little on the high side".

"I'm a little surprised that it's not a little bit lower than it is but we're not talking 20 cents worth," Mr Stevens said on Friday at his semi-annual address to the House of Representatives Economics Committee in Canberra.

At 1200 AEST on Friday, one Australian dollar was buying 104.34 US cents.

Mr Stevens said Australia's status as an attractive place to invest - in sovereign debt and the private sector - meant more money was flowing into the country from foreign investors, pushing up the value of the currency.

Asked whether the RBA could intervene to bring down the value of the Australian dollar to boost to trade-exposed industries, Mr Stevens said such a move would come at a risk to taxpayers.

"There are not inconsiderable risks that the taxpayer would effectively take on with extremely large-scale intervention."

He said Switzerland's central bank, which has attempted to bring down the value of the Swiss franc by purchasing foreign assets, now held the equivalent of 70 per cent of that nation's gross domestic product (GDP) in foreign exchange reserves.

"That is a very large sum of money, our reserves are currently about 45 billion-odd (dollars), a tiny fraction of Australia's GDP," he said.

Mr Stevens said that there was no guarantee tha large-scale intervention would successfully bring down the currency's value.

"At times we've known in the past, interventions of reasonably substantial size at the right moment can have some impact.

"The kind of intervention that's trying to stand in front of a huge tide, quite likely wouldn't be that successful."

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