VIEW: Bank Of America On The RBA’s Balance Sheet Run-Off

Bank of America note that “the RBA's Bond Purchase Program (QE) is likely to end in H122, to complete the withdrawal of unconventional monetary policy introduced over the pandemic. Yield curve control was unwound in November 2021 and drawdowns from the Term Funding Facility (TFF) were closed after June 2021. These tools have expanded the balance sheet from A$200bn to A$632bn (~27% of GDP) and will remain substantial over the coming years. The maturity profile of RBA's asset holdings suggests policy support should remain in place over the coming years and keep Q422 rates lift-off in view. The Bank's balance sheet may only shrink by roughly A$5bn in 2022, A$100bn in 2023 and A$140bn in 2024. These initial reductions are mainly driven by the TFF maturities (bank self-securitized assets). The RBA could still be holding A$300bn worth of government bonds in 2025 vs. currently A$340bn. Gradual RBA balance sheet reduction and a lower terminal policy rate in this cycle relative to the Fed should support narrower AU/U.S. 1y1y swap rates.”