RBA Assistant Governor Christopher Kent said in a speech that while most observers focuses were on the central bank’s 25bps rate hike this month, it also decided to proceed with “quantitative tightening”.
“As the Bank now takes steps to remove the considerable monetary stimulus, increases in the cash rate are the tried and tested measure that will do most of the work…,” he said. “the gradual process of QT will also play a role in this task, but a predictable and modest one.”
“Because the Bank’s bond portfolio will mature gradually, the Bank’s balance sheet and commercial banks’ ES balances will remain large for some years. This means that the cash rate will continue to trade slightly below the cash rate target, but above the rate paid on ES balances. Most importantly though, the Bank will continue to be able to maintain effective control over the cash rate as it withdraws monetary policy stimulus in the period ahead.”.