Intervention definition

Intervention is a deliberate action by a central bank, government, or regulator to influence markets, currency values, or financial stability. It is typically used to calm disorderly conditions or restore confidence.

In the foreign exchange market, a central bank intervenes by buying or selling its own currency to slow a sharp rise, cushion a rapid fall, or steady the exchange rate. Such intervention can be sterilised, where the effect on the money supply is offset, or unsterilised, where the money supply is allowed to change. Governments and regulators can also intervene through emergency loans, capital injections, guarantees, or new rules.

Intervention treats the symptoms of market stress rather than its underlying cause, so it can steady prices without removing the economic risk behind them. Direct intervention involves real trades in the market, while verbal intervention is a public statement meant to shift expectations without any money changing hands. Its effects reach currencies, bond yields, equity markets, and interest rate expectations.