Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 534

The RBA’s QE losses

Accounting losses from a pandemic inspired bond buying spree has wiped out the Reserve Bank of Australia’s (RBA) equity and more, pushing its balance sheet into negative equity territory.

Its 2022/23 annual report shows a loss of $6 billon for the financial year, which following the $36.7 billion loss in the previous year, now has the bank’s liabilities $17.7 billion in excess of its assets (see chart). But being a government entity that can create money to pay its bills, it remains secure.

How it happened

How did the RBA get into this predicament? To understand why the RBA is losing money, we need to follow the flow of money building up to the losses.

When the pandemic exploded in early 2020, the federal government commenced fiscal support packages such as JobKeeper, raising government debt significantly. At the same time, the RBA introduced unprecedented monetary stimulus including ultra-low interest rates and increased commercial bank reserves via quantitative easing (QE).

When the federal government raises debt, it is a loan to the government from the private sector via commercial banks. The banks transfer deposits to Treasury, and a matching liability of government debt arises. That debt is recorded as an asset for the banks, offset by the loaned funds it transferred to Treasury. Treasury pays interest on the government debt to the banks. The resulting balance sheet movements are depicted:

When QE occurs, it is mostly seen as money creation. But it could also be construed as a loan, this time from the private sector to the RBA. Being the “borrower", the RBA gains an asset and a liability, in the form of government debt and commercial bank deposits respectively. The deposits having been created electronically by the RBA, which only central banks can do. The RBA pays interest on those deposits to the banks. Again, the balance sheet movements:

When QE and government debt raising occurs simultaneously, the commercial banks' balance sheets net out, leaving:

If Treasury then transfers its deposits to the private sector to fund say a JobKeeper scheme, then the RBA will have effectively financed that fiscal spending via electronically created deposits. That financing will remain in place until such time that the RBA pays back the government debt it “borrowed” from the banks, and its self-created liabilities are extinguished.

The impact of interest rate rises

The illustrative RBA balance sheet built above reveals a double whammy when interest rates rise. On the assets side, the value of the debt it holds falls with rising interest rates. And on the liabilities side, higher interest rates translate into higher servicing costs on the commercial bank deposits created in the QE process.

With the RBA purchasing some $330 billion worth of government bonds during the QE program at a coupon of around just 0.25%, a rapid rise to 4.1% in the official cash rate has wreaked havoc on the mark-to-market value of its portfolio. And what began as a cost of just 0.1% on the increased bank deposits, has blown out substantially with 4.1% now being paid.

With less than ten per cent of its bonds holdings having matured thus far, the RBA at this stage does not plan to actively sell bonds to wind down its portfolio faster, which would realise capital losses. All the while recognising the risk of further losses if interest rates continue to rise.

This situation is not confined to Australia, with central banks in other advanced economies suffering extensive losses with their QE programs.

The lessons

The question might therefore be asked, did central banks go into the QE caper with eyes wide shut, given the poor financial outcomes of high inflation, rapidly increasing interest rates, and impaired central bank balance sheets?

Many would say that losses should have been expected when buying low-yielding bonds, and when interest rates can really go only one way, up. And that it was not such a good idea after all. While others would say that the stimulus kept businesses afloat, unemployment low, and that it was all for the greater economic good.

In the fullness of time, governments will need to balance whether significant monetary stimulus is appropriate in times of global turmoil, being mindful that there really is no such thing as a free lunch.

 

Tony Dillon is a freelance writer and former actuary. This article is general information and does not consider the circumstances of any investor.

 

  •   8 November 2023
  • 3
  •      
  •   

RELATED ARTICLES

The RBA's balancing act

This 'forgotten' inflation indicator signals better times ahead

This vital yet "forgotten" indicator of inflation holds good news

banner

Most viewed in recent weeks

The ultimate superannuation EOFY checklist 2026

Here is a checklist of 28 important issues you should address before June 30 to ensure your SMSF or other super fund is in order and that you are making the most of the strategies available.

Noel Whittaker’s take on the budget

Marketed as a fix for inequality and housing affordability, the latest budget instead delivers a tangle of tax changes that leave everyday Australians worse off.

Australia has no death duties. Technically.

Australia may not levy formal death duties, but a growing web of tax measures is quietly shaping what wealth passes between generations. Now, the 2026 budget adds another layer.

Lithium's rally is real this time – but no-one trusts it

The lithium rally mirrors the early-2010s tech stock surge, with demand set to double by 2030. Supply has been slow to respond, creating a market deficit for future tech like humanoid robotics and solid-state batteries.

Welcome to Firstlinks Edition 662 with weekend update

The debate over the budget is increasingly shaped by frustration and perceptions of unfairness, rather than clear-eyed assessment of policy outcomes.

Two months into retirement

A retirement researcher's take on retirement and her focus on each of her six resource buckets to stay engaged during the transition and beyond.

Latest Updates

Are the government’s CGT changes better for young investors?

New CGT rules promise fairness, but could young investors lose out? A practical scenario reveals how changes impact deposit goals, investment choices, and long-term wealth building for the next generation.

Retirement

How to minimise tax with a will

Inheritance tax implications in Australia may surprise some, as poor estate planning without proper wills or trusts can lead to costly tax bills and delays for beneficiaries.

Investment strategies

AI can’t pick winning funds, but it can help you avoid losers

Machine learning has been touted a game changer investment management. But a new study overturns claims that AI can generate positive alpha in mutual funds. Here are some practical takeaways for investors.

Investment strategies

Inflation BIG picture: Boomers got lucky, next Gen not so much

A 150-year view shows inflation's upward bias, driven by shifting monetary regimes and war stocks. This marks an end to the low-inflation boom that enriched boomers and ushers in a higher-inflation era for younger investors.

Planning

Tax deductibility of financial advice improves affordability

A shrinking adviser workforce and rising costs are squeezing access to financial advice, just as demand surges. Expanded tax deductibility offers a modest but meaningful boost to affordability.

Retirement

Retirement in reality – 3 months in

A reflection on travel mishaps, smart decision-making, time pressures and rebuilding health habits. Three months in, here's how to navigate the surprising realities of life after work.

Taxation

Calculating the business cost of Australia’s new 'productivity tax'

Amid a national productivity crisis, new economic analysis finds the tax changes in the 2026 Federal Budget create Australia’s first-ever by design 'Productivity Tax', where young people will pay the biggest price.

Sponsors

Alliances

© 2026 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.