The RBA’s huge financial losses from its pandemic stimulus measures have sunk its balance sheet deeper into negative equity.
The Reserve Bank of Australia’s huge financial losses from its extraordinary pandemic stimulus measures have blown out to about $43 billion and sunk its balance sheet deeper into negative equity.
A commercial bank or business in negative equity would be bankrupt. But a government-backed central bank that can print money cannot be insolvent.The RBA projects that its negative equity position will widen to up to $27 billion by 2025 and that it won’t return to positive capital until the 2030s, under four future interest rate scenarios.
The RBA and government have insisted a recapitalisation is not necessary and the bank can operate monetary policy effectively. The government will not receive the customary circa $2 billion annual dividend for at least a decade as the RBA rebuilds its buffers. The central bank is now paying those same banks a higher floating rate of 4 per cent on $362 billion of excess reserves deposited with the RBA and losing money on the difference between the lending rate and deposit rate.Monash University economist and former RBA official Zac Gross said the losses were the “hidden cost” of quantitative easing, but the RBA could force commercial banks to repay some of the benefits they received.
RBA officials have said lowering the rate paid to banks on excess reserves would interfere in the monetary policy transmission.“Just considering the financial losses in isolation, I don’t think it’s particularly helpful,” Ms Bullock said.Internal RBA modelling concluded the bond program reduced long-term yields by 0.30 of a percentage point, while lowering the currency by 1 to 1.4 percentage points, resulting in “stronger economic activity and inflation than otherwise”.
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