Reserve Bank reports record $40bn loss on government bonds purchased during Covid pandemic
The Australian Reserve Bank has reported a record loss of almost $37bn for the 2021-22 year after accounting for the changed valuation of the huge bond purchases amassed during the Covid pandemic.
The losses, which won’t be realised unless the central bank sells the bonds before they mature, won’t affect its operations. But the consequence for the federal budget is the likelihood the RBA won’t pay the government dividends for years until its current negative equity of about $12.4bn is restored and built up further.
The Reserve Bank joined the Morrison government in its efforts to pump money into the economy to keep it afloat during the depths of the pandemic. During that period, the RBA’s balance sheet more than tripled in size to about $650bn in February 2022 when its special bond-buying program stopped.
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With interest rates rising, the value of the debt holdings fell, resulting in unrealised losses for domestic bonds alone of $40.3bn. The overall loss for the year was $36.7bn.
“This negative equity position does not affect the bank’s operations or its ability to operate effectively or perform its policy functions,” the RBA said.
“The board expects that the bank’s capital will be restored over time due to positive underlying earnings and capital gains when bonds mature.”
The RBA’s actions during the crisis helped lower the cost of borrowing by raising demand for the bonds. It has since said it will only resort to such purchases under “extreme circumstances”, such as when interest rates can’t be cut any further.
At the height, the RBA was buying $5bn in mostly federal debt every week, with the rest mostly state bonds.
The RBA governor, Phil Lowe’s total compensation dropped about 3.6% from 2020-21, to just under $1.037m, or about $20,000 a week.