Reserve Bank Governor Adrian Orr was paid $804,802 in the 2024 year, down from $853,810 a year earlier. Photo: RNZ
The Reserve Bank will pay its first dividend to the government in three years - in part because of the higher interest rates of the past year.
The bank said in its most recent annual report that it would pay a $597 million dividend.
The dividend is decided by determining the bank's "target capital level" the minimum amount of capital it needs to hold to cover financial risks.
Money it makes in a year beyond that can be paid in a dividend. This year, the TCL was $4.1b.
Gareth Kiernan, chief forecaster at Infometrics, said a higher official cash rate increased the bank's net interest income.
When the OCR is higher, the bank charges borrowers more for their loans, but pays more to those that deposit money with it. In the 2024 year, the bank's net interest income was $394 million compared to $341m the year before and $179m in the 2021 year, when interest rates were at their lowest.
A Reserve Bank spokesperson said it was the main factor that contributed to the 2023/24 reported surplus.
"A slight reduction in the target capital level due to Covid-19 balance sheet facilities rolling-off and changes in unrealised balance sheet movements also increased the size of the annual dividend this year."
Kiernan noted this was a significant shift, particularly compared to the past two or three years.
In the 2024 year, the bank made $154m from net gains from fair value changes, but lost $75m the previous year.
"I suspect that the big losses in the last few years were driven by rising interest rates reducing the value of bond holdings by the Reserve Bank - as interest rates rise, the price of bonds declines.
"That effect was certainly visible in the Large Scale Asset Purchase programme, although the Reserve Bank was indemnified against these specific losses by the government so they don't affect the profit and loss - the government/taxpayer effectively covers LSAP so the loss is directly offset in the accounts by an equal and opposite gain.
"But for non-LSAP bond holdings the bank has, the revaluations can have a significant effect on the profit and loss. So with longer-term interest rates starting to edge down by the end of the 2023/24 financial year, the losses of the previous three years have started to turn into gains."
The report also showed that Reserve Bank Governor was paid $804,802 in the 2024 year.
That is compared to $853,810 a year earlier. The Reserve Bank said that was due to changes in his accrued annual leave entitlement. "This change shows he took more annual leave last year and his accrued entitlement reduced compared with prior years."
The bank has more than 430 staff earning more than $100,000 a year.
Its board members made a combined $724,725 in the year.
Finance Minister Nicola Willis said the dividend was what was expected and was in line with the government's agreement with the Reserve Bank.
"It demonstrates it's meeting its performance plan."
She said the government was entering negotiations for the next five-year funding agreement with the Reserve Bank.
That needed to be struck by around the middle of next year, she said. "The Reserve Bank, like any other government agency, needs to demonstrate it's being prudent with New Zealanders' money."