The Reserve Bank of Australia will get an extra $8.8 billion cash from the federal government as a buffer to a “volatile” world.
“Following discussions with the Reserve Bank Governor, we have determined that a one-off cash transfer from the Commonwealth to the Reserve Bank is a prudent course of action,” says Treasurer Joe Hockey.
The $8.8 billion will increase the Reserve Bank Reserve Fund, which had been reduced by the strong Australian dollar and dividend payments to the government, to 15 per cent of assets at risk from 3.8 per cent.
This will swell the buffer fund to about $11.32 billion from $2.52 billion.
On the other side of the balance sheet, the move will take money from the Commonwealth’s cash balance this financial year and will be a significant hit on the budget, increasing government borrowing.
Hockey: “This injection of funds puts beyond any doubt the Reserve Bank’s continued ability to perform its core monetary policy and foreign exchange functions, in an environment of heightened financial market volatility.
“Today’s decision ensures that the RBA is able to maintain a strong balance sheet over the medium term in what is likely to continue to be a volatile global economy.
“The Government’s decision to grant this transfer does not mean that the solvency of the Reserve Bank, or its ability to perform its vital functions, is in any way under threat. Rather, it prudently increases the Reserve Bank Reserve Fund to the level currently assessed to be desirable by the Reserve Bank Board, thereby enhancing the independence of the Bank.”