Australia’s central bank has equity wiped out by billions in bond losses


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SYDNEY, Sept 21 (Reuters) – Australia’s central bank said on Wednesday its capital had been wiped out by losses from pandemic-era bond buying, but its ability to create money meant she was not insolvent and would carry on as normal.

Reserve Bank of Australia (RBA) Deputy Governor Michele Bullock said the bank suffered a mark-to-market loss on its A$44.9 billion ($30.02 billion) bond holdings. dollars) in 2021/22.

The bonds were accrued as part of an A$300 billion emergency stimulus package that ran from November 2020 to February 2022.

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The losses eclipsed underlying profit of A$8.2 billion and left the central bank with an accounting loss of A$36.7 billion. It also consumed all of the RBA’s reserve funds, leaving it with a negative net position of A$12.4 billion.

Bullock noted that while this would bankrupt a normal business entity, the RBA’s liabilities are guaranteed by the government.

“Furthermore, since it has the ability to create money, the Bank can continue to meet its obligations as they come due and therefore is not insolvent,” Bullock said.

“The negative equity position will therefore not affect the ability of the Reserve Bank to do its job.”

The RBA intends to hold the bonds until maturity and likely make a profit then, offsetting valuation losses.

Bullock noted that other central banks around the world would face similar losses on their emergency stimulus packages, though many have marked their assets to market like the RBA.

In July, the Swiss National Bank (SNBN.S) reported a first-half loss of 95.2 billion Swiss francs, the largest since the central bank was established in 1907.

The RBA also faces continued financial losses on its bond holdings which it says could range from A$35 billion to A$58 billion until 2033, when the last of the bonds will mature.

As a result, the RBA expects to retain all future earnings to rebuild its capital position and therefore does not expect to pay a dividend to the government for a number of years, Bullock said.

It also means that the RBA would not need a cash injection from the government, as happened in 2013 when the bank suffered valuation losses on its foreign exchange reserves.

Treasurer Jim Chalmers said earlier he agreed with the RBA’s position and argued the bond-buying program had played a key role in helping the economy through the pandemic.

Chalmers recently set up an independent investigation into the RBA’s policy framework, board structure and communications. Read more

($1 = 1.4954 Australian dollars)

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Reporting by Wayne Cole; Editing by Christian Schmollinger and Sam Holmes

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