When the central bank offsets a fall in interest rates with the sale of foreign currency reserves, the action is called:
A) an offsetting movement.
B) a foreign reserve counteraction.
C) a central bank inside-out operation.
D) a nonsterilized intervention.

Question

Quizplus · Accepted Answer

This action is called a nonsterilized intervention, which means that the central bank is not sterilizing, or neutralizing, the effects of the intervention on the money supply by simultaneously buying or selling domestic assets. Instead, the sale of foreign currency reserves directly offsets the fall in interest rates.

When the Central Bank Offsets a Fall in Interest Rates