RBNZ pays $510 mln dividend as tumbling kiwi dollar fattens FX gains

Monday 28th September 2015

The Reserve Bank of New Zealand will pay a $510 million dividend to the government, its biggest since 2009, after the falling kiwi dollar generated a gain from the central bank's holdings of offshore currencies.

The Wellington based central bank reported a profit of $624 million for the 12 months ended June 30, up from a profit of $56 million a year earlier, according to its annual report. Net investment revenue soared almost seven-fold to $681 million in the year, including a $379 million gain from foreign exchange positions, compared to a loss of $198 million in 2015.

The gain on currency trading means the Reserve Bank lifted its distribution to the government to $510 million from a more modest $20 million return in 2014. The central bank sold a net $554 million of New Zealand dollars in the 12 months ended June 30, a period when the trade-weighted index dropped 12.3 percent and covering a period when it intervened in FX markets, selling currency to try and push it lower.

That's the biggest return to the government since 2009 when the central bank paid $630 million, its first year under a new dividend policy that included foreign exchange gains when calculating the distribution, and a period when the TWI dropped 10.2 percent, while the RBNZ was a net buyer of $1.27 billion.

The bank's open foreign currency position was $3.5 billion as at June 30, up $1 billion from a year earlier, which it said reflected a combination of foreign currency purchases and depreciation of the New Zealand dollar.

Governor Graeme Wheeler said the bank faces a "tight budgetary framework" under its new five-year funding agreement that kicked off from July 1, and had made a net 15 staff redundant earlier this year to help prepare for the constraints.

The bank's total operating expenses rose to $70.6 million in the year from $60.5 million in 2014, including a $6.7 million provision for its old bank notes, which will be replaced by new currency, and $1 million of restructuring costs.

BusinessDesk.co.nz

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