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Reserve Bank returns to profit, trims dividend to $210 mln

Monday 3rd October 2011

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The Reserve Bank of New Zealand returned to profit in the 2011 financial year on unrealised gains in its investment portfolio, and trimmed its return to the government to $210 million.

The central bank made a profit of $144 million in the 12 months ended June 30, according to its annual report, turning around a loss of $111 million a year earlier. The bank trimmed its dividend from last year’s $290 million, as realised income was lower than in 2010.

The Reserve Bank reported total interest income of $670 million, of which $214 million came from New Zealand government bonds, which were issued to pre-fund fiscal deficits. Still, net interest income rose 6.7% to $368 million, while investment income was $191 million, compared to a loss of $69 million a year earlier.

“The board recognises that this unhedged position, which has been adopted for policy purposes related to the maintenance of stability and liquidity in the foreign exchange market, leads to volatility in the bank’s annual financial position as a result of exchange rate fluctuations,” chairman Arthur Grimes and deputy chair High Fletcher said in their report.

Governor Alan Bollard reiterated recent messages that interest rates will stay lower for longer after the recent meltdown in global financial markets as Europe attempts to get its sovereign indebtedness in order and the United States struggles to rein in mounting fiscal deficits.

“While the future track of interest rates can be expected to rise to contain underlying inflationary pressures, we have signalled that movements in the OCR (official cash rate) are likely to be more restrained than in previous cycles,” Bollard said. “We can expect more disruption and fragility ahead, much of it originating from offshore. We cannot predict all of this, but we can plan to be resilient through it.”

The bank lifted total assets to $31.09 billion as at June 30 from $26.36 billion a year earlier, with the Treasury placing more cash at the bank in its expanded government bond programme.


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