The Reserve Bank of Australia is scaling back the large footprint it gained during the Covid-19 pandemic, following a significant expansion of its balance sheet aimed at supporting the economy. Though the central bank still holds substantial obligations, the most intense phase of its quantitative easing response now appears to be over. This shift is intended to restore balance sheet health, while the global economy shows signs of fragility, with increased demand for gold reflecting growing investor unease.
Before the pandemic, the RBA’s balance sheet ranged between $150bn and $200bn. During the crisis, the central bank expanded its assets to more than $600bn through government bond purchases and support for bank lending. This was nearly one quarter of Australia’s GDP. The approach provided liquidity, lowered long-term interest rates and maintained cash flow as options for traditional rate cuts became limited.
Now the RBA has reduced its total assets to around $403bn by letting its lending programs expire and allowing bonds to mature. However, liabilities such as bank deposits and physical currency still outweigh assets by $5.3bn. That gap had peaked at around $20bn just after the pandemic but has narrowed significantly. Over the past year, the RBA delivered an $11bn surplus following a $4.1bn loss in the previous year. Total accumulated losses over the last four years remain above $34bn.
Looking ahead, the RBA expects its balance sheet to shrink further, eventually returning closer to pre-pandemic levels. This will be achieved by letting existing QE bonds mature gradually over the next five years. The strategy carefully reverses earlier stimulus efforts and pushes back against low interest rates, contributing to what is known as quantitative tightening. While some central banks such as the Bank of England are speeding up the process by selling bonds, and others like the US Federal Reserve are slowing it, the RBA is choosing a more moderate approach.
This cautious outlook indicates that Australia's central bank is unlikely to resume large-scale bond purchases in the near future. According to its internal review, such tools are now considered appropriate only in extreme circumstances where interest rates are already near zero. In summary, QE will remain on hold unless another major economic crisis takes place.
