Ex-RBA officials: RBA QT seen unlikely, would have little impact – MNI

Citing former Reserve Bank of Australia (RBA) policymakers, MNI reported on Tuesday, the central bank is highly unlikely to undertake any form of quantitative tightening (QT) in the near future, as it would need the RBA to sell a large portion of its portfolio of long-term Australian Commonwealth Government Bonds to slow the economy significantly while injecting unpredictable volatility into fixed-income markets.

Key quotes

“A sale of the RBA's total portfolio of bonds would likely equate to a 30bp raise to the cash rate.”

"The RBA's research suggests that the purchases had about the same effect of loosening policy 30bp. So we're talking about the same impact as one more rate hike."

“While the RBA will not likely execute QT anytime soon, it could review its policy upon the maturity of other pandemic stimulus measures, such as the Term-funding Facility. The size of the central bank's balance sheet was material, at about 35% of total outstanding ACGBs.”

“The Board had agreed to hold its AUD300 billion portfolio until maturity but noted it would review the strategy in future.”

"I don't see a burning need for them to shrink the balance sheet very quickly. Yes, it carries a little interest rate risk, but the central bank can do that."

Market reaction

At the time of writing, AUD/USD is holding gains at around 0.6550, up 0.43% on the day.