Westpac chief economist Bill Evans estimated the Reserve Bank’s balance sheet has suffered $37 billion in losses from its bond purchasing, but the toll would have been higher had it capitulated and embraced unconventional monetary policy earlier.

It would have cost a further $11.6 billion had the Reserve Bank not adopted the more deliberate policy of implementing a yield target back in March 2020. Its formal quantitative easing, or QE, policy started in November 2020.

As global central banks raise interest rates aggressively to bring down inflation, Mr Evans questioned whether they acted appropriately in deploying QE ‘‘at a time when supply was the dominant constraint to activity’’.

The severity of today’s inflation challenge is a consequence of those policies.

‘‘Boosting demand in the face of constrained supply is the classic scenario for pressuring inflation,’’ Mr Evans said. However, the Westpac chief economist endorsed the Reserve Bank’s resolve in adopting its yield target in the face of widespread use of QE by other central banks, describing it as both cost effective and imaginative.

The Reserve Bank has pledged a review of its pandemic response.

‘‘Perhaps the RBA will be the first central bank to recognise that bond buying was not a necessary policy during COVID,’’ Mr Evans said. ‘‘All central banks are now facing the cost of their policies with massive mark-to-market losses on their balance sheets which are now materialising as negative cash flows and will extend for years to come.’’

The value of the Reserve Bank’s purchases was $281 billion. Mark-to-market returns ascribe a present valuation to those bond holdings, adjusting for the sell-off in bond prices which has taken place against a backdrop of rising inflation and monetary tightening.

If held to maturity, a bond investor will always recover the face value of their investment separate to the benefit of coupon payments.