The RBA’s balance sheet has barely shrunk since it decided to stop reinvesting the proceeds from maturing bonds. While pressing ahead with quantitative tightening would make it easier for the Bank to engage in quantitative easing during future downturns, the hurdles for a restart to bond purchases are high. And given that a further decline in its bond holdings may lead to tighter financial conditions, we expect the Bank to pause quantitative tightening once policymakers start to lower the cash rate.
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