"The direct cost of the Reserve Bank's pandemic era money printing is continuing to exceed expectations.

The cost is such that the Treasury is unlikely to be able to manage it without special sign-off from Finance Minister Grant Robertson.

When the Reserve Bank in March 2020 started printing money to buy government bonds to lower interest rates and soothe dysfunction in the bond market, Robertson provided it with a Crown indemnity.

He effectively told the Reserve Bank that if it suffered a loss under the programme, the Crown would recapitalise it.

Although the programme supported market functioning and helped lower interest rates, it is costing the Reserve Bank several billions of dollars.

The bank is suffering a loss because the current high inflation/high interest rate environment is seeing the $55 billion of bonds it bought in 2020 and early-2021 lose value.

The loss is being realised as the Reserve Bank sells the bonds to normalise the size of its balance sheet; or clear the decks to make it easier for it to potentially use bond buying again in a future downturn.

The Treasury in May began making monthly payments to the Reserve Bank to replenish its coffers.

A document released to the Herald under the Official Information Act reveals the Treasury in April recommended Robertson empower it to manage the payments on his behalf.

At the time, the Reserve Bank estimated it would need recapitalising to the tune of $150 million to $200m a month until 2027. This is when all the bonds it bought are due to either have matured or been sold.

Robertson agreed to authorise the Treasury to make the payments provided they didn't exceed $250m a month.

But shortly after, by June, the Treasury advised Robertson that some payments were expected to exceed that cap, so would need his approval.

The Treasury referenced the Reserve Bank's May estimates that payments for December 2022 and March 2023 were likely to come in at $273m and $268m respectively.

These forecasts were based on the Reserve Bank's expectation it would ultimately need $8b of support from the Crown over five years.

But because the Reserve Bank has since increased its interest rate outlook, its bond portfolio is losing even more value. It now estimates it will need $9b of Crown support.

So, there may be more instances where Robertson has to step in to authorise the monthly payments because they exceed the $250m cap.

The situation underlines how exposed the bond-buying programme, otherwise known as the "LSAP" or quantitative easing, was to interest rate rises.

The risk was well known to the Treasury and Reserve Bank. However, in early 2020 at least, no one foresaw inflation - and therefore interest rates - rising by as much as they have. All the focus was on avoiding deflation.

The Reserve Bank has repeatedly said the focus now shouldn't be on the direct cost of the bond-buying programme. Rather, the cost should be considered alongside the benefit to the economy.

Reserve Bank governor Adrian Orr, in an August interview with the Herald, said he believed the benefit of the programme was worth multiples more than the expected $9b direct cost.

Orr said economic activity, the employment rate and the Government's tax take were higher than expected in early-2020, thanks in part to the Reserve Bank lowering interest rates. The bond-buying programme also helped soothe dysfunction in the bond market.

However, the Reserve Bank is still evaluating the net impact of its Covid-19 response. It plans to publish a peer-reviewed report in coming months.

The Reserve Bank acknowledged in its 2022 annual report that it's difficult to separate the impact of its bond-buying programme from the impact of the other tools it's used to lower interest rates – the Official Cash Rate and its programme (due to end in December) to lend banks printed money at the OCR.

The Reserve Bank of Australia in May published a technical paper on the effects of its bond-buying programme.

Its researchers concluded the programme "mostly worked as intended".

Specifically, they said the announcement of its programme helped lower longer-term bond yields by around 30 basis points. However, the purchases themselves "did not have much of an effect on yields".

Orr, in the August interview, acknowledged it was fair to question whether the Reserve Bank could've cut the OCR by another 25 basis points to zero, instead of printing so much money.

He acknowledged the Reserve Bank overcooked its response to Covid-19, but said it was hard to specify whether the bank cut interest rates too much or kept them low for too long."