Using our balance sheet to support monetary and financial stability

17 May 2021 03:00 p.m.
Next release
16 June 2021 03:00 p.m.
Reserve Bank of New Zealand

The core functions of the Reserve Bank include the provision of physical currency, using monetary policy to achieve price stability and support maximum sustainable employment, and promoting a sound and efficient financial system. To fulfil these functions, we carry out a wide range of tasks that require us to hold substantial amounts of financial assets and liabilities. These assets and liabilities form our balance sheet, which provides a snapshot of the financial position of the Reserve Bank at a given point in time.

In response to COVID-19 we’ve introduced a range of initiatives to provide additional monetary stimulus and to support the smooth functioning of New Zealand’s financial markets. These initiatives have enlarged our balance sheet from its December 2019 (pre-COVID-19) level of $24.60bn to $85.33bn at the end of April 2021. Of this increase $2.36bn occurred during April. Our balance sheet is likely to increase further from here.

The Reserve Bank's Balance Sheet

Assets (NZ$ million) Programme/Purpose Dec-19 Apr-21 Liabilities (NZ$ million) Programme/Purpose Dec-19 Apr-21
NZ Government Bonds LSAPs - Nominal bonds - 52,157 Currency in Circulation Payment system 7,557 8,217
LSAPs - Index Linked bonds - 2,932 Crown Settlement account 3,048 40,061
BMLS - 134 Bank Settlement accounts 7,493 30,597
Early repurchases 248 3,447 Reserve Bank bills Monetary policy implementation and liquidity management 1,225 275
Non-Market Bonds – Domestic Liquidity 3,512 3,627 Repurchase Agreements - 68
LGFA LSAPs - 1,878 Crown Indemnity for LSAP Program   - -
BMLS - 133 Other liabilities   2,524 3,124
Crown Indemnity for LSAP Programme   - 2,608 Equity Revaluation gains/losses 2,752 2,986
Cash Lending FLP - 2,853
TAF - 160  
COMO - -        
TLF - 1,462      
Foreign Investment Assets using FX Swaps proceeds Monetary Policy Implementation and Liquidity Management 7,302 1,269      
Reverse repurchases 600 -      
Foreign Reserve Management assets Foreign Reserves 12,383 12,227      
Other assets - 554 441      
Total   24,599 85,328 Total   24,599 85,328

Note: The above table is consistent with the R1 figures published on the RBNZ website on 14th May 2021 and includes unaudited financial data.

Note: For the next release, the layout of the table will be aligned with the R1 and R2 formats published on the RBNZ website. The table below is an example of the new layout.

Assets (NZ$ million) Programme/Purpose Dec-19 Apr-21
NZ Government Bonds Large Scale Asset Purchase - Nominal Bonds - 52,157
Large Scale Asset Purchase - Inflation-Indexed Bonds - 2,932
Early Repurchases 248 3,447
Non-Market Bonds - Domestic Liquidity 3,512 3,627
Bond Market Liquidity Support - 134
New Zealand Local Government Funding Agency Large Scale Asset Purchase - Nominal Bonds - 1,878
Bond Market Liquidity Support - 133
Crown Indemnity for Large Scale Asset Purchase Programme Large Scale Asset Purchase - 2,608
Cash Lending
Funding for Lending Programme - 2,853
Term Lending Facility - 1,462
Term Auction Facility
- 160
Foreign Investment Assets using FX Swaps proceeds Monetary Policy Implementation and Liquidity Management 7,302 1,269
Reverse Repurchases 600 -
Foreign Reserve Management Assets Foreign Reserves 12,383 12,227
Other Assets

554 441
Total   24,559 85,328
Liabilities and Equity (NZ$ million) Programme/Purpose Dec-19 Apr-21
Crown Settlement Account Payment System
3,048 40,061
Bank Settlement Accounts 7,493 30,597
Currency in Circulation 7,557 8,217
Reserve Bank Bills Monetary Policy Implementation and Liquidity Management 1,225 275
Repurchase Agreements - 68
Crown Indemnity for Large Scale Asset Purchase Programme Large Scale Asset Purchase - -
Other Liabilities   2,524 3,124
Equity Share Capital, Retained Earnings and FX Gains/Losses
2,752 2,986
Total   24,559 85,328


The initiatives below have increased the size of our assets in the balance sheet.

We’re buying NZ Government and Local Government Funding Agency (LGFA) bonds to provide stimulus to the economy and support market functioning

We’re buying up to $100bn of NZ Government Bonds, Local Government Funding Agency Bonds and, NZ Government Inflation-Indexed Bonds, as a part of a Large Scale Asset Purchase (LSAP) programme. At the end of April, we held $55.09bn in Government Bonds and $1.88bn in LGFA bonds under the LSAP programme. 

The Crown has agreed to indemnify the Bank in respect to financial losses associated with the LSAP programme. Under the letter of indemnity issued by the Minister of Finance, the Crown will reimburse the Bank for any net losses from the LSAP programme and, conversely, any surplus from the programme must be paid to the Crown. If, for example, we have net mark-to-market losses from LSAP bonds, we will have a corresponding receivable from the Crown, which will be accounted for as an asset in our balance sheet. Movements in this balance have no impact on the consolidated Crown balance sheet, as they are claims between the RBNZ and the Crown.

As at April 2021, we had a Crown indemnity balance for the LSAP programme of $2.61bn on the asset side of our balance sheet. This is due to mark-to-market losses on our LSAP bond holdings driven by the increase in market bond yields. We expect the Crown indemnity balance to fluctuate in line with market movements.

We introduced a Bond Market Liquidity Support (BMLS) programme to bolster the functioning and liquidity of the NZ Government and LGFA bond markets. The programme complements our activities above by allowing us to purchase small amounts of bonds at short notice, to provide confidence to market participants. At the end of April, we had bought $134mn in Government Bonds and $133mn in LGFA bonds through the BMLS.

As part of our Non-market bonds – Domestic Liquidity portfolio, we hold a proportion of every Government Bond on issue to use in our Open Market Operations and Bond Lending Facility, where we act as a lender of last resort. This is part of our normal operations and differs from temporary asset purchase facilities such as LSAP and BMLS. At the end of April, we held $3.63bn of NZ Government Bonds in the portfolio.

We’re ensuring banks can access enough cash to keep lending at low interest rates

In December 2020, we introduced a new longer-term funding scheme for banks called the Funding for Lending Programme (FLP). FLP aims to lower the cost of borrowing for businesses and households, thereby supporting economic activity and employment, and helping keep prices stable. At the end of April, banks had drawn down $2.85bn through the FLP.

We pre-emptively reinstated our Term Auction Facility (TAF) in March 2020, which was last used during the Global Financial Crisis as a way to alleviate pressures in funding markets and to provide banks with an alternative source of longer-term funding (up to 1 year term).

The final tenders for TAF were held on 16 March 2021, as financial market and liquidity conditions had improved significantly since March 2020 and the demand for special facilities had fallen. At the end of April, banks had drawn down $160mn through the TAF.

We introduced Corporate Open Market Operations (COMO) so that banks can borrow cash, for terms of up to three months, in exchange for a wider range of collateral, such as short-term corporate securities. The aim is to support the market for corporate securities by allowing them to be exchanged for cash if required. Banks and their customers have not needed to use this facility, and the final tenders for COMO were held on 16 March 2021.

In May 2020, we introduced a longer-term funding scheme for banks called the Term Lending Facility (TLF) in support of the Government’s Business Finance Guarantee Scheme. The purpose is to allow banks to access low-cost funding so they can lend to businesses at low interest rates. At the end of April 2021, banks had drawn down $1.46bn through the TLF.

We increased the Crown overdraft facility to assist with the potential for larger-than-usual fluctuations in Crown cash flows

We provide a Crown overdraft facility to help the Government manage short-term fluctuations in its cash flows. We temporarily increased the overdraft from $5bn to $10bn for a three month period to 1 July 2020, to assist with the potential for some larger-than-usual changes in cash flows. The overdraft facility was utilised for a short period coinciding with the Government’s April 2020 bond maturity, and the account has since been replenished following the issuance of additional bonds and Treasury bills.

We manage the amount of cash in the banking system to ensure that payments can be settled and interest rates remain near the OCR

We initially injected large amounts of NZ dollars (in exchange for other assets) to meet increased demand for cash in the banking system. Our NZ dollar lending through the foreign exchange (FX) swap market saw our foreign currency assets increase from $7.30bn in December 2019 to $18.67bn during March 2020, but this has since reduced to $1.27bn in April 2021 as increased cash level in the banking system reduced the need for FX swap activity.

As a part of our role of managing fluctuations in liquidity, we have begun to buy back the Government’s May 2021 bond. At the end of April, we had repurchased $3.45bn of these bonds.

We hold foreign currency reserves to provide us with the capability to affect the NZ dollar exchange rate

We are responsible for managing dysfunction in the foreign exchange market and in the financial system. We can also, in some circumstances, use foreign exchange intervention as a monetary policy tool when there is significant divergence in the New Zealand dollar from its fair value. These responsibilities require us to maintain a portfolio of foreign currency reserves. There has been no specific need to use the foreign reserves to affect the exchange rate recently. At the end of April, our foreign reserve management holdings made up $12.23bn of our assets.


The initiatives above and below have also seen changes to our liabilities in the balance sheet.

We supply New Zealand dollar notes and coins

We are the sole supplier of NZ dollar banknotes and coins. Currency is a liability on our balance sheet because banks that deal directly with the Reserve Bank to buy physical currency can return it to us in exchange for a deposit in their account at the Reserve Bank. Our currency liabilities initially increased by $0.8bn from $7.2bn in February 2020 as banks filled ATMs in preparation for potential disruptions to supply chains ahead of the COVID-19 lockdown. At the end of April 2021, our currency liabilities were $8.22bn.

We provide the Government with an account that it uses to deposit surplus funds

If the balance in the Crown Settlement Account (CSA) is positive, our balance sheet shows a liability. If the Government is overdrawn, the overdraft is an asset on the balance sheet (see overdraft facility above). The positive CSA balance has increased substantially over recent months, reaching $40.06bn at the end of April, as the government bond issuance has outpaced expenditure.

We provide banks with accounts to settle inter-bank payments

Banks in New Zealand also hold accounts with us and use these accounts to settle inter-bank payments. These accounts cannot be overdrawn unlike the CSA.

We influence the total size of banks’ settlement account balances when we conduct our operations. For example, when we purchase bonds from banks through our Large Scale Asset Purchases (outlined above), banks’ deposit the cash proceeds back into their settlement accounts at the Reserve Bank. As we purchase more bonds, this results in an increase in the amount of assets on our balance sheet, but also increases the amount of liabilities (i.e. deposits) that banks leave with us (as we have replaced their bond holdings with cash).

At the end of April 2021, the banks’ settlement balances were $30.60bn, compared to $7.49bn in December 2019. Settlement cash balances are likely to remain elevated as more bonds are purchased through the LSAP programme.

The growth of banks' settlement balances has been partially offset by increased Government Bond issuance, which withdraws cash from the banking system into the Crown Settlement Account.

Equity acts as a buffer against potential losses from our operations

The difference between our total assets and liabilities makes up our equity on the balance sheet. Our equity is held by the Crown and acts as a buffer against the potential for losses arising from our operations. We pay dividends to the Government when our profits cause our equity to rise above what we need to hold in reserve as a buffer. At the end of April, our equity made up $2.99bn of our liabilities.

As stated in our annual report for 2020, we have recommended and the Minister of Finance has agreed that no dividend will be paid to the Government for 2019-2020. This is because there is uncertainty about further actions needed in the near term to achieve our policy objectives given the impacts of COVID-19 on the New Zealand economy. Retaining earnings strengthens our balance sheet and gives us the ability to absorb further risk in the future if required. This action is consistent with our dividend principles.

For the latest news and data about our operations, and the development of the Reserve Bank’s balance sheet see:

Monthly summary of our balance sheet (position as at month-end). We present the positions in three different ways:

For more detail about our operations in foreign currency and resulting positions see F5 - Reserve Bank foreign currency assets and liabilities.