Sterilized intervention - CFA 2014 Mock Question

broadex

New member
Joined
Jun 18, 2026
Messages
0
Reaction score
0
Sterilized intervention
  • gov’t sells securities to reduce effects of FX intervention
  • Monetary base and short term rates unaffected
Can anyone explain this? How does selling securities reduce the effects of FX intervention????
 
As you sell domestic currencies in FX market to slow down the appreciation, you increase $ supply in the market and fuel higher inflation. By selling securities to private sector in the market, you absorb the excess $ supply and hence effectively slow down currency appreciation and prevent higher inflation.
 
Back
Top