No dividend as RBA focuses on strengthening capital reserve
In its annual report on Thursday, the central bank said a 9 per cent slide in the currency last financial year lifted statutory earnings up from $1.08 billion a year earlier.
The bank holds a large pool of foreign currency reserves, so a weaker exchange rate boosts profits by lifting the Aussie dollar value of these assets.
Despite the higher statutory earnings, however, the less volatile measure of underlying profit was "very low by historical standards" at just $700 million, because of the low level of global interest rates.
The underlying profit measure determines any dividends the bank can pay the government, and this year it will not make a distribution.
It also confirmed that its capital reserve - designed the protect the bank against sudden market moves - held just $2.5 billion, which it said was "well below its target level".
On Wednesday, Treasurer Joe Hockey said the government would inject $8.8 billion into the buffer fund, which will rebuild the fund to much healthier levels while dragging the federal budget into a deficit approaching $40 billion this year.
Governor Glenn Stevens' comments in a foreword to the report urged the government not to take a dividend this year. "The board's view is that the earnings should be devoted in their entirety to rebuilding the Reserve Bank Reserve Fund," he wrote.
Mr Stevens is one of the highest-paid central bankers in the world, earning $1.02 million a year, but the report shows his pay was unchanged in 2012-13. Average salaries across the central bank rose 4 per cent, an increase in line with that of the previous year.
The bank's operational costs rose by more than 8 per cent due to an increase in staff numbers for several projects, including an effort to prevent counterfeiting of Australian bank notes.
During the financial year the Reserve made three 0.25 percentage point cuts in the cash rate in response to a weakening in the mining boom. It made a further cut in August, taking the cash rate to 2.5 per cent, its lowest in decades.
"The Australian economy recorded below-average growth over the year, as the impetus from the extraordinary run-up in investment spending by the resources sector began to abate and as some other sectors remained somewhat subdued," Mr Stevens wrote.
He noted there had been a "noteable" decline in the Australian dollar towards the end of the financial year as investors reassessed the prospects of the Australian and US economies. However, this has recently been partly undone by a rise in the dollar above US96¢.
Frequently Asked Questions about this Article…
The RBA decided not to pay a dividend this year because the underlying profit, which determines dividend payments, was very low at just $700 million due to low global interest rates. The bank chose to focus on strengthening its capital reserve instead.
The sharp fall in the Australian dollar boosted the RBA's profits by increasing the value of its foreign currency reserves, resulting in a statutory profit of $4.3 billion for the year.
The RBA's capital reserve is designed to protect the bank against sudden market moves. It acts as a financial buffer to ensure stability in times of economic uncertainty.
The government injected $8.8 billion into the RBA's capital reserve fund to rebuild it to healthier levels, despite this move contributing to a federal budget deficit.
The RBA's operational costs rose by more than 8% due to an increase in staff numbers for various projects, including efforts to prevent counterfeiting of Australian banknotes.
In response to the weakening mining boom, the RBA made three 0.25 percentage point cuts in the cash rate during the financial year, with a further cut in August, bringing the cash rate to 2.5%, its lowest in decades.
The decline in the Australian dollar towards the end of the financial year was notable as investors reassessed the prospects of the Australian and US economies. This decline initially boosted the RBA's profits but was partly undone by a subsequent rise in the dollar.
Average salaries across the RBA rose by 4%, which was in line with the previous year's increase, while Governor Glenn Stevens' salary remained unchanged at $1.02 million.