General TradingU

Unsterilized Foreign Exchange Intervention

A central bank action to buy or sell foreign currency in the open market without offsetting the resulting change in the domestic money supply through opposing open market operations. Unlike sterilised intervention, unsterilised intervention directly affects the monetary base, interest rates, and liquidity conditions in the domestic economy. This makes it more powerful at influencing exchange rates but also carries greater risk of unintended inflationary or deflationary effects.

Example

“The central bank conducted unsterilised intervention, selling $5 billion worth of foreign reserves and allowing the resulting contraction in domestic liquidity to push short-term rates higher, strengthening the local currency.”