Treasurer Joe Hockey has denied the federal government is bailing out the Reserve Bank with a $8.8 billion contribution to help it perform its core functions in a volatile economic environment.
Mr Hockey said the one-off grant to bolster the central bank's reserve fund did not mean it was in trouble, but it was important Australia's key institutions were in the best shape to face the financial challenges ahead.
"It's not a bailout," he told reporters in Canberra on Wednesday, adding he did not want to suggest the central bank was in "any way in a diminished position".
He conceded the money would have to be borrowed and would deal a "significant hit" to the budget and a time when the government was trying to bring debt under control.
However it was a necessary measure that should have been taken by the former Labor government, which instead withdrew "extraordinary" dividends from the RBA and weakened its position.
News that makes sense
Your trusted source for staying up-to-date with the world around you. Get free daily news updates and analysis, straight to your inbox.
Mr Hockey, who recently returned from a meeting in Washington DC with other world finance ministers, said Australia's economy was still growing but trouble lurked on the world stage.
He vowed not to allow Australia become as vulnerable as the United States.
"We need all the ammunition in the guns for what's before us," Mr Hockey said.
"Our institutions must be at their absolute strongest to deal with the challenges in the days, the weeks and the months ahead."
Mr Hockey said the central bank's reserve fund had been depleted in recent years, and RBA governor Glenn Stevens had indicated it should be increased to 15 per cent of it's assets at risk.
The treasurer said the reserve fund now sits at 3.8 per cent, but the $8.8 billion would ensure the recommended 15 per cent target was met.
