(Bloomberg) -- New Zealand’s Treasury Department has begun payments to the Reserve Bank to offset losses on bonds the bank bought during its quantitative easing program in 2020 and 2021.

Monthly payments of between NZ$150 million and NZ$200 million ($125 million) began in May and are likely to continue until late 2027, according to a Treasury report dated April 13. The document was released Tuesday in Wellington after first being reported by the New Zealand Herald.

The government provided an indemnity for the RBNZ’s so-called Large-Scale Asset Purchase program, which grew to as much as NZ$53.5 billion before QE was halted in July last year. As interest rates have increased, the public liability has climbed to NZ$8.8 billion, according to central bank data. 

From this month, the RBNZ began to sell bonds to the Treasury at a rate of NZ$5 billion a fiscal year. The RBNZ will sell roughly half its bonds back to the Treasury while the other half -- short-dated debt -- won’t be reinvested when it matures. 

Under the terms of the indemnity, the Treasury is required to make the payments to offset the RBNZ’s declining net interest income, and also reflect realized losses as bonds are sold, according to the report.

“The amount required to be paid by the Treasury each month will be dependent on interest rates at the time of the transaction and the bonds the RBNZ will be selling,” Treasury says. “Further increases to interest rates or a quicker LSAP unwind will require larger payments to be made to cover the RBNZ’s losses.”

The report says payments could exceed the forecast if the RBNZ chooses to sell more than NZ$5 billion of bonds each fiscal year.

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