The Reserve Bank’s role in bolstering Australia’s economy during the Covid pandemic saw it post a book loss for the year 2021-22 of almost $37 billion, leaving it with negative equity, revealed the bank’s deputy governor, Michele Bullock.

During a speech in Sydney on Wednesday, Bullock said the accounting methods used by the central bank had to adapt to the reduced value of billions of dollars of public debt that the RBA had purchased to support economic activity during the shutdowns. .

For the year 2021-22, this left valuation losses of $44.9 billion which, after deducting $8.2 billion of underlying earnings, left a net loss of $36.7 billion. dollars, Bullock said. The bank’s accumulated profit reserve fund was only able to absorb some of those losses, leaving the RBA with negative equity of $12.4 billion, she said.

While private companies in such a situation “wouldn’t be a problem”, Bullock said the government provided a guarantee and the bank itself could also print money to meet its obligations, and “it is therefore not insolvent”.

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

Even so, it remained important for the RBA to return to a positive equity position “over time”, and there would likely be an impact on the federal budget in the form of a lack of dividends as the bank rebuilds. its own funds.

“Although it has not requested a capital injection, the board has indicated to the government that it expects future profits to be retained by the bank until the capital of the bank be reinstated,” Bullock said.

“The Treasurer agreed with this general approach, noting that under the Reserve Bank Act, the issue of government distributions is reviewed annually,” she said.

The fiscal impacts of the government’s efforts to sustain the economy during the Covid disruptions have tended to attract more attention than the monetary impacts, including the $134.2 billion underlying cash shortfall over the past year. the year 2020-21.

However, the role of the RBA was also important, and the impacts of its efforts and residual legacy on its balance sheet and, ultimately, that of the federal government, will take time to determine.

Earlier on Wednesday, the RBA released the results of an internal review of the so-called quantitative easing measures it took in the depths of the pandemic-induced economic crisis to detail its effectiveness and the lessons it learned. drew from it.

The bank ended up buying up $281 billion in federal, state and territorial debt between November 2020 and February 2022. Previously, the RBA held little such debt compared to some other wealthy countries, but the gap has widened. shrunk during the pandemic.

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— Peter Hannam (@p_hannam) September 20, 2022n","url":"https://twitter.com/p_hannam/status/1572353515871412225?s=20&t=Ih_vVRdpw52n2sebiMlrDw","id":"1572353515871412225","hasMedia":false,"role":"inline","isThirdPartyTracking":false,"source":"Twitter","elementId":"318b8609-5ab7-4312-b9e4-fd8689b12eda"}}'>

The RBA has announced a review of its bond-buying program between November 2020 and February 2022, which saw it scoop up $281 billion in a bid to keep interest rates low. Here’s how the purchase compares to other savings. (Source: RBA) pic.twitter.com/3mLivyHOnq

— Peter Hannam (@p_hannam) September 20, 2022

The objective of the bond purchases was “to lower the interest rate structure in Australia”, thus reducing the cost of borrowing.

In doing so, it provided “additional insurance against the continuing risk of very poor economic outcomes”, the bank said.

The RBA review estimated that buying all of these bonds lowered government bond yields (the interest rate) “by about 30 basis points” to record highs.

In the process, the RBA’s balance sheet was transformed as bonds blew up liabilities.

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— Peter Hannam (@p_hannam) September 20, 2022n","url":"https://twitter.com/p_hannam/status/1572362601740500993?s=20&t=Ih_vVRdpw52n2sebiMlrDw","id":"1572362601740500993","hasMedia":false,"role":"inline","isThirdPartyTracking":false,"source":"Twitter","elementId":"76509fef-fcc3-4eb0-954d-fc590181eb37"}}'>

The RBA’s balance sheet has been transformed by all these bond purchases. If marked to market, the bank would have significant negative value given the way bonds have traded since the Covid pandemic subsided and inflation took off. pic.twitter.com/eGXERQKEUO

— Peter Hannam (@p_hannam) September 20, 2022

The review assesses the program as a success, but the RBA board stressed that “consideration should be given to the use of unconventional monetary policy tools only in extreme circumstances, when the he usual monetary policy tool – the cash rate target – was used for the as much as possible”.

In other words, the RBA will not engage in a similar bond-buying effort unless other options to keep the economy afloat – namely cutting interest rates – are not available. have been exhausted.