SYDNEY: The Reserve Bank of Australia (RBA) sustained a valuation loss on its assets of A$5.8 billion ($5.8 billion) in the year to end June 2011 as a rising local dollar reduced the value of its foreign reserves, its annual report showed on Thursday.
As a result, and as was expected, the central bank will not pay the government a dividend for the year.
The RBA holds net foreign reserves of around A$40 billion so as to provide a capacity to intervene under conditions of serious market turmoil, Governor Glenn Stevens noted in a foreword to the report. When the Australian dollar rises, the value of the reserves automatically declines.
"A rising currency, though reflecting improved prospects for the Australian economy, reduces the Australian dollar value of the Reserve Bank's foreign assets," wrote Stevens.
The valuation loss will be absorbed by a capital fund set aside for the purpose, known as the Reserve Bank Reserve Fund (RBRF), which was reduced to A$1.32 billion.
"The rundown in the RBRF still leaves the Bank's financial position strong, with net interest-earning assets of over $50 billion," said Stevens.
"Nonetheless, the prudent course will be to apply future earnings to rebuilding the RBRF before the resumption of dividend payments. The Australian Government's budget projections have been made on this assumption."
The RBA also paid no dividend to the government in 2009/10 but that followed a record payment of A$6 billion in 2008/09 which came after the central bank intervened heavily to calm markets during the global financial crisis.
The Australian dollars bought then, it later sold at a substantial profit.
In 2010/2011, the RBA realised valuation losses of A$1.14 billion, largely on the management of its foreign reserve portfolio. It made unrealised valuation losses of A$4.65 billion due to the rise of the Australian dollar.
The central bank had underlying earnings of A$897 million in the year, though that was near historically low levels as interest rates around the world were also low by historical standards.
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