Once more, all our instruments need to work in the same direction. There are clear benefits of such a well-balanced tightening package. From a stance perspective, passively rolling off our bond portfolios in addition to raising the short-term rate, helps to transmit the tighter policy stance more evenly to the real economy.
Model simulations conducted by DNB staff show that an earlier start of so-called Quantitative Tightening (QT) lowers both peak inflation and the required terminal rate via its effect on the term premium. When thinking specifically about QT, our decisions should rest on four principles. First, policy rates should remain the primary instrument to adjust our monetary policy stance.