Central-bank intervention aims to slow, not stop, dollar's decline, analysts say

February 10, 1991|By Knight-Ridder News Service

WASHINGTON -- Major central bank intervention in currenc markets last week appeared to be aimed at slowing the dollar's decline rather than halting it altogether, analysts say.

"It hasn't been the type of intervention that is designed to turn the market around," Scott Pardee, chairman of Yamaichi Securities, said.

Nicholas Sargen, director of bond market research for Salomon Brothers, agreed the intervention was aimed mainly at slowing the descent and preventing a "free-fall."

U.S. authorities "care about the dollar if they think it [a decline] leads to a loss of investor confidence," Mr. Sargen said. "A benign decline is of less concern to them."

Last week, the major central banks intervened repeatedly, trying to shore up the dollar, which fell to new lows against the German mark and the Swiss franc.

The dollar's latest fall came after the Bundesbank, Germany's central bank, increased its official lending rates half a percentage point while the Federal Reserve, worried about a deep U.S. recession, cut its bellwether discount rate by half a percentagepoint.

David Resler, chief economist for Nomura Securities, said the Fed and other central banks are trying to prevent "a dramatic decline in the dollar" that would be reversed later when interest rates overseas start to come down.

Although authorities have intervened to support the dollar, Mr. Pardee noted that Treasury Secretary Nicholas F. Brady repeated his call last week for even lower interest rates, which would tend to contribute to a lower dollar.

"There's a certain inconsistency there that has been picked up" bythe foreign-exchange markets, Mr. Pardee said.

Currency traders "smell blood" and want to take the dollar lower, he said.

Last Wednesday, Mr. Brady told the Senate Budget Committee that the dollar had weakened of late but said that "this is a problem that we can overcome and still have sufficient investment from abroad."

Asked if he was worried about the weak dollar, he told reporters there was still "plenty of investment" into the United States despite wider interest rate differentials. "That's what we care about," he said.

However, Mr. Brady's emphasis changed the next day. He told Congress that the U.S. government did not have a policy to create a "weak dollar."

Until Mr. Brady's statements Thursday, the administration seemed content with the dollar's decline in recent months. For example, administration officials have noted that the decline in the dollar in the past year should buoy prospects for U.S. exports.

Moreover, Treasury sources confirmed newspaper reports quoting a Treasury official as saying that U.S. officials were content with current exchange rates and were not seeking a weak dollar.

David Jones, economist for Aubrey G. Lanston, said he believed the dollar carries a "low priority" at both the Fed and the Treasury.

"I don't think there is a dollar strategy," he said.

Under Chairman Alan Greenspan, the Fed has not allowed the dollar's foreign-exchange strength to become a major influence on monetary policy, Mr. Jones argued.

Indeed, some Fed policy makers have complained about efforts by the Treasury to intervene to push the dollar in a certain direction.

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