US Fed extends $15 bn swap line to New Zealand

US Fed extends $15 bn swap line to New Zealand

Washington: The US Federal Reserve said it had extended a temporary $15 billion currency “swap" line to New Zealand’s central bank to help it boost lending and unblock the global credit squeeze.

“Under the reciprocal agreement, the Reserve Bank of New Zealand is authorised to swap its currency for up to $15 billion in the US currency to address ongoing, elevated pressures in US dollar short-term funding markets," the Fed said in a statement on Tuesday.

“This facility, like those already established with other central banks, is designed to help improve liquidity conditions in global financial markets," it added.

The deputy governor of the Reserve Bank of New Zealand, Grant Spencer, said the facility is to provide an additional source of liquidity for the US dollar funding market.

“While there is no need to use the facility right now, it is useful to have this capacity if markets become dysfunctional," Spencer said in a separate statement.

The New Zealand central bank is the 10th to receive a temporary swap arrangement from the Federal Open Market Committee, headed by chairman Ben Bernanke, amid the global financial crisis that has left lending at a virtual standstill.

The FOMC has previously authorised such arrangements with the European Central Bank, the Bank of England, the Bank of Japan and the central banks of Australia, Canada, Denmark, Norway, Sweden and Switzerland.

The swap agreement with the US central bank comes as New Zealand is mired in recession for the first time in a decade.

The economy shrank in the first and second quarters of this year, meeting the technical definition of recession as two consecutive quarters of contraction.