He came, he spoke, he soothed.

I am talking about Reserve Bank Governor, Glenn Stevens, whose calm, bald-pated central banker visage fronted the House of Reps Standing Committee on Finance and Economics this morning on the Gold Coast and said the right things.

The stockmarket bounced, money market interest rates eased and the Aussie dollar stopped misbehaving.

The local market had been down sharply, it rebounded to trade in a 100 point range, but then the steam ran out of the recovery around midday and it was only up a handful of points.

But there was none of the drama we saw yesterday when RAMS Home Loans spooked not only our market but those in Asia with news it couldn’t refinance around 40% of its mortgage portfolio, or some $6 billion of short term loans. Then a glitch on the Futures Exchange stopped it trading yesterday afternoon and the market went into near freefall, only to recover when the SFE came back on line.

The market focused on this comment from Mr Stevens, mentioning the events a week ago when major central banks around the world intervened heavily in money markets to ensure there wasn’t a credit freeze:

While the likelihood of a significant problem of this sort arising in the Australian money market was low, last Friday the Reserve Bank as part of its normal dealing operations purchased more assets, hence adding more cash to the system, than it otherwise would have done …

The intent of this was to ensure that the cash rate remained at the target level set by the Board. The market operated normally and overnight funds were available in the market at 6.50 per cent, exactly as intended, and this has remained the case subsequently. Of course, the Reserve Bank remains ready, as always, to ensure there is adequate liquidity for markets to function normally in the period ahead.

And then they learned of more interesting news from his testimony: that for the first time in six years the RBA has intervened to slow the fall of the Aussie dollar.

The dollar plunged yesterday and last night and according to an RBA spokesman, the intervention happened last night to try and steady the dollar and slow the decline in what it termed “thin and disorderly trading”.

Mr Stevens said that financial markets have become “extremely skittish,” in a comment to the committee. But there was no backtracking on last week’s lift in the bank’s official interest rate to 6.50%, no any apology or second thoughts. It was the right thing to do and remains the right thing with the local economy still strong and not hurt by the credit market problems.

The Aussie dollar (along with the NZ currency) has fallen sharply this week as investors quit what they viewed as high yield, high risk investments where they had borrowed money in low rate Japan to invest elsewhere. As a result the yen had its best rise for a year.

But the Aussie dollar plunged 10% over the week, from a high of 85.05 USc in late trading Monday to a low in New York of 78.19. It bounced back above 79 USc this morning and then settled back to trade around 78.70 USc

Helping sentiment was another strong dose of liquidity into the money markets from the RBA this morning. The bank added $3.87 billion to the financial system, the third $3 billion plus injection since 10 August. It has injected more than $3 billion only three times this year, all since last Friday.

The Bank of Japan added $14 billion earlier today, almost double yesterday’s injection.