Quantitative Tightening (QT)

Quantitative tightening, or QT, is the reverse of quantitative easing: a central bank shrinks its balance sheet by letting bonds mature without reinvesting the proceeds, or by selling assets outright. This withdraws liquidity from the financial system and tends to push longer-dated yields higher. QT usually accompanies or follows a rate-hiking cycle, and currency traders treat it as a second lever of policy tightness alongside the policy rate itself. Because reserves drain gradually, the effect on exchange rates is slower and less headline-driven than a rate decision. Even so, a faster-than-expected runoff pace can support a currency, while an early pause to the programme is generally read as a dovish signal.