A bailout is being discussed as the RBA faces $43 billion in losses.

The Reserve Bank of Australia (RBA) has reported huge financial losses due to its extensive COVID-19 pandemic stimulus efforts, deteriorating its balance sheet. 

Economists are now urging Treasurer Jim Chalmers to infuse up to $30 billion in emergency capital into the bank after it reported losses of approximately $43 billion.

There are also calls for the major banks to return some of their excessive profits gained from the RBA's losses.

In its latest annual report, the RBA disclosed an accounting loss of $6 billion for the last fiscal year, compounding a $36.7 billion loss from the previous year.
Increased interest rates paid to commercial banks and a drop in the value of the RBA's government bond portfolio drove the losses.

This financial hit has pushed the bank's balance sheet deeper into negative equity, reaching $17.7 billion for 2022-23. While this might spell insolvency for a commercial bank, the RBA, as a government-backed entity, cannot technically go bankrupt.

The RBA says the negative equity situation will expand to approximately $27 billion by 2025, with no expectation of returning to positive capital until the 2030s under various interest rate scenarios.

According to former RBA board members and economists, the government should act promptly to inject billions of dollars into the central bank to bolster its balance sheet. 

They say this capital injection would help ensure that the RBA maintains its lender-of-last-resort role in times of crisis.

Rising interest rates have substantially impacted the value of $330 billion in government bonds purchased by the RBA during the pandemic, leading to significant losses. 

Australia’s central bank also stands to lose around $8 billion associated with the pandemic-era $188 billion term funding facility (TFF).

Monash University economist Zac Gross, a former RBA official, has pointed out that these losses result from quantitative easing, where bonds are purchased at low yields and held until they appreciate, leading to unrealised losses. 

He suggested that the RBA could mitigate these losses by reducing the interest rate it pays on excess reserves.

In contrast, commercial banks argue that the RBA's low-cost funding was passed on to home borrowers through ultra-low fixed-rate loans. They also claim that they hedged the interest rate risk in financial markets by converting fixed rates into floating rates, minimising their financial gain.

The RBA says recapitalisation is unnecessary, and its ability to conduct monetary policy remains intact.
A multi-billion-dollar capital injection could jeopardise Treasurer Jim Chalmers' hopes for a consecutive budget surplus.

Both say they remain committed to rebuilding the central bank's buffers and maintaining monetary policy effectiveness.