Pretoria - Reserve Bank governor Gill Marcus said on Thursday that losses were incurred in the 2009/10 period in the execution of the bank's public duties and did not in any way relate to operational deficiencies or undue risks being taken.
Marcus explained that the South African Reserve Bank (Sarb) acquired foreign exchange for reserves accumulation purposes, and in the process injected rand liquidity into the domestic money market.
In order for domestic money market conditions to reflect the prevailing monetary policy stance as determined by the Monetary Policy Committee (MPC), such liquidity needed to be sterilised (or drained) from the system.
This was done by open market operations conducted by the bank by way of issuing Sarb debentures, and conducting reverse repurchase transactions. These transactions - which effectively amounted to a borrowing of rand - were undertaken, in terms of cost, at or around the repo rate which was currently 5.5%.
The foreign currency which was purchased was then invested in different currencies, ie in US dollars, euros and pound sterling.
"In the current difficult economic climate, these investments generally earn low rates of return, currently below 1% per annum," Marcus said.
This negative interest rate differential had resulted in the R1.16bn loss reported in the annual report 2010/11.
Unrealised and realised fair value gains and losses on financial assets and financial 12 liabilities were also included in the interest income line item, and were for the account of the bank.
The losses incurred, as in 2009/10, were covered by drawing down on the contingency reserve, which declined from R9.1bn to R7.94bn for the bank. Once the bBank returned to profitability, there would be a need to rebuild the contingency reserve and reconsider the level that this should stand at taking account of recent experience, Marcus added.
Marcus explained that the South African Reserve Bank (Sarb) acquired foreign exchange for reserves accumulation purposes, and in the process injected rand liquidity into the domestic money market.
In order for domestic money market conditions to reflect the prevailing monetary policy stance as determined by the Monetary Policy Committee (MPC), such liquidity needed to be sterilised (or drained) from the system.
This was done by open market operations conducted by the bank by way of issuing Sarb debentures, and conducting reverse repurchase transactions. These transactions - which effectively amounted to a borrowing of rand - were undertaken, in terms of cost, at or around the repo rate which was currently 5.5%.
The foreign currency which was purchased was then invested in different currencies, ie in US dollars, euros and pound sterling.
"In the current difficult economic climate, these investments generally earn low rates of return, currently below 1% per annum," Marcus said.
This negative interest rate differential had resulted in the R1.16bn loss reported in the annual report 2010/11.
Unrealised and realised fair value gains and losses on financial assets and financial 12 liabilities were also included in the interest income line item, and were for the account of the bank.
The losses incurred, as in 2009/10, were covered by drawing down on the contingency reserve, which declined from R9.1bn to R7.94bn for the bank. Once the bBank returned to profitability, there would be a need to rebuild the contingency reserve and reconsider the level that this should stand at taking account of recent experience, Marcus added.