New coins costly for bank

The Reserve Bank recorded an operating surplus of $159.3 million for the year to June, its annual report shows.

This compares with the $140.8 million profit the bank expected, and last year's $153 million surplus.

However, the report says that this surplus is not a good indicator of the bank's management performance.

"The principal source of income for the bank is interest earned on the financial assets backing currency in circulation - which means the bank's income varies as interest rates move up and down.

"Also, the bank deals in financial markets to achieve policy goals, not to maximise its surplus," the report says.

For these reasons, its operating expenditure was a better indicator of its stewardship of public resources.

The bank's operating expenditure for the year was $44.4 million, which was 3.2 per cent over budget. It was 0.4 per cent higher than the previous year's expenditure, the report says.

The higher-than-budgeted expenditure was mainly because the cost of issuing new coins was $1.1 million over budget due to the higher-than-expected demand for new currency.

Higher-than-expected personnel expenses after the bank's registry was restructured also contributed to budget problems.

The Reserve Bank Act required the bank to calculate the amount by which its income exceeds the level of operating expenditure agreed in its funding agreement with the Government. Treasurer Michael Cullen decided whether the surplus was added to the bank's equity or paid to the Government.

The bank had paid $157.7 million to the Government, the report says.

Reserve Bank Governor Dr Don Brash said the year to June was a demanding time for the bank.

"During that period, monetary policy entered a tightening phase, which always engenders some stress," Dr Brash said in a statement released with the annual report.

The bank had also completed the introduction of polymer banknotes and closed its Christchurch branch during the year.

- NZPA