Australia’s Central Bank Suffers Losses Worth Billions In Bond Purchase Program

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Central Bank Australia Bond Loss

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The Reserve Bank of Australia has made public that it suffered losses in its bond purchasing program.

Michele Bullock who’s the Deputy Governor of the Reserve Bank of Australia (RBA) spoke at an event yesterday in Sydney, hosted by Bloomberg. Bullock said Australia’s central bank suffered a huge loss in its bond purchasing program during the pandemic era. But there was no cause for alarm as the RBA wasn’t insolvent because it can always print money, and business would continue as usual.

The bonds were purchased under an emergency $300B stimulus program spanning November 2020 through February 2022. Has been marked-to-market resulting in an a$36.7bln loss on the net in 2021/22. Loss on bonds holding shrunk RBA reverse’s to a net negative equity position of a$12.4bln.

A loss like this would bankrupt a normal commercial entity. But that isn’t the case with the RBA as their liabilities are insured by the government.

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

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

Bullock stated that other central banks are probably in a similar situation. Facing losses on their emergency stimulus program, and probably marking it as the RBA did.

In July, the Swiss National Banks reported the biggest first-half loss in its history of 95.2 billion Swiss Francs.

The RBA would hold the bonds till maturity, as it would likely turn a profit, thereby offsetting its valuation losses. The RBA could face losses up to the tune of a$35bln and/or a$58bln in its bond holdings when the last of them mature, come 2023.

The RBA has no intentions to pay dividends to the government in the coming years, and would rather keep any profit to rebuild its capital position. As a result of that, wouldn’t require cash injection from the government, like in 2013, when they suffered a huge valuation loss on their foreign currency reserves.

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