RBA Loss Narrows in Fiscal 2023 Even as Negative Equity Widens

Australia’s central bank reported a smaller accounting loss in the past fiscal year, while its negative equity ballooned due to valuation losses triggered by a surge in government bond yields.

(Bloomberg) — Australia’s central bank reported a smaller accounting loss in the past fiscal year, while its negative equity ballooned due to valuation losses triggered by a surge in government bond yields.

The Reserve Bank’s negative equity position was A$17.7 billion ($11.2 billion) in the 12 months through June, up from A$12.4 billion, the bank’s annual report published Thursday showed. The RBA’s A$6 billion accounting loss narrowed from A$36.7 billion in 2021-22.

RBA in Negative Equity as Bullock Not Sure Rates Restrictive Yet

The “board’s judgment continues to be that negative equity does not affect the bank’s ability to operate effectively or perform its functions, but that it is important that the bank’s equity is restored,” the RBA said. “This can be achieved through the bank retaining its profits over the years ahead.”

The RBA didn’t pay a dividend to the government for a second straight year. “The treasurer has endorsed the board’s general approach to restoring the equity position over time,” the report said. The RBA’s status is unusual as central banks typically use a government indemnity.

The RBA has raised interest rates by 4 percentage points since May 2022 as it joined global peers in aggressively tightening policy to try to restrain inflation. Economists expect one final hike to take the cash rate to 4.35% as early as next month, while money markets imply the RBA is all-but done.

The central bank had unrealized valuation losses of A$1.8 billion, mainly reflecting the rise in bond yields in Australia and abroad, and only partially offset by a weakening of the Australian dollar over the year, it said.

“The bank’s future earnings remain highly uncertain due to the mismatch between the fixed returns on most of its assets and the variable rate paid on a large portion of its liabilities,” the annual report showed. “This is especially so in the next financial year.”

More stories like this are available on bloomberg.com

©2023 Bloomberg L.P.