SYDNEY — The Reserve Bank of Australia has suffered huge accounting losses as a result of the government bond-buying program it undertook through the pandemic, leaving it temporarily in a position of negative equity.
RBA Deputy Gov. Michele Bullock said in a speech Wednesday that in the year to June 30, the central bank recorded an accounting loss of 36.7 billion Australian dollars (US$24.55 billion). Underlying earnings were A$8.2 billion, but valuation losses were A$44.9 billion, she added.
After full accounting, the net equity position stands at A$12.4 billion, Bullock said.
The RBA introduced bond buying in November 2020 as part of a second package of monetary-policy measures in response to the pandemic. It was a complement to other measures such as a three-year yield target when the official cash rate had fallen to a record low of 0.10%.
All up, the RBA bought A$281 billion of Australian, state and territory government bonds.
“If any commercial entity had negative equity, assets would be insufficient to meet liabilities and therefore the company would not be a going concern. But central banks aren’t like commercial entities,” Bullock said.
The federal government provides a guarantee against the RBA’s liabilities, and since it has the ability to create money, the central bank can continue to meet its obligations as they become due and isn’t insolvent, she said.
“The negative equity position will therefore not affect the ability of the Reserve Bank to do its job,” Bullock said.
The RBA’s negative equity position will reverse over time, she added. “As the bonds mature and the bank’s balance sheet declines, the bank will once again return to positive earnings. These earnings will result in the bank returning to positive equity over time.”
Earlier Wednesday, the RBA published a review of its bond purchasing, saying that it is confident that it helped lower interest rates across the yield curve when cheap funding was needed through the pandemic.
Still, a return to buying bonds in the future will only be done when an extreme need arises, it added.