The Reserve Bank's role is supposedly only to implement the country's monetary policy and provide financial stability - but this year it's provided a stunning profit as well.

The just released annual report shows that for the year to June the RBNZ made a whopping $906 million profit - giving the Government a chunky and no doubt welcome $630 million dividend cheque into the bargain.

Ironically the global financial meltdown, which caused so much havoc around the world, is the reason the RBNZ was so in the money.

The tumbling worldwide interest rates meant that bonds the RBNZ was already holding - at much higher rates of interest - increased hugely in value.

As well, the bank profited from the plunging value of the New Zealand dollar in late 2008 and early 2009, as it was able to sell overseas reserves while the value of the Kiwi was low - so giving a much higher return in New Zealand dollars.

But the latest result from the RBNZ comes with a warning from the bank's Governor Alan Bollard.

"This is a strong financial result which reflects abnormally large changes in market conditions," he said. However, he warned that the Bank's future financial performance could be expected to be more "volatile" than it has been in recent years.

Those comments by Bollard can be taken as referring to the fact that interest rates would be expected to rise over the next year - possibly reversing some of the gains made in value of bonds in the past year. In addition, since hitting a low point of around US50c in February and March this year, the Kiwi dollar has surged to over US74c in value - meaning that there may be some adverse currency transactions for the Reserve Bank to cope with this year.

Bollard has requested "in recognition of the seriousness of the financial crisis" that he, his deputy and the two assistant governors not get a pay increase this year.

The RBNZ annual report does not explicitly say what Bollard and the assistant governors earned in the past year. However, a table of staff remuneration shows that one employee - it is to be presumed, Bollard - earned between $570,000 and $580,000, another employee received between $400,000 and $410,000 and two other staff were paid over $300,000.

Bollard said New Zealand escaped major damage from the worst global financial crisis in decades, but imbalances and vulnerabilities were highlighted.

"Prior to the crisis, households had been consuming beyond their incomes, borrowing heavily offshore through their banks," he said.

"In the past two years there has been a substantial correction in household savings and the external payments imbalance. However, further improvements will be needed to stop our international debt position from mounting further."

The recent rise by the New Zealand dollar had not supported the shift towards the export and import-competing industries that would be necessary to improve the situation, Bollard said.

"On these trends, there is a real risk that recent improvements in the external balance will be reversed."

During the year the Reserve Bank had introduced a new prudential liquidity policy for banks which aimed to address the main vulnerability of the New Zealand system that was exposed during the crisis.

Progress was also well under way to implement a new prudential regime for non-bank deposit takers, such as finance companies, in the wake of considerable weakness in the non-bank sector over recent years, Bollard said.

The Reserve Bank's crisis liquidity measures and earlier foreign exchange intervention carried risks to its balance sheet that continued to require careful management.

Its total assets expanded over the year to June 30 2009 by about $6 billion, to reach $31 billion. The Reserve Bank's equity at June 30 was $3 billion.

- with NZPA

- © Fairfax NZ News