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Bank of Canada expects to announce end of quantitative tightening in next few months - REUTERS
By Promit Mukherjee and David Ljunggren
OTTAWA, Jan 16 (Reuters) - The Bank of Canada will soon announce the end of its quantitative tightening program, deputy governor Toni Gravelle said on Thursday, making it one of the first central banks globally to stop unwinding pandemic-era asset purchases.
The BoC, which had pumped massive liquidity into the system, began reducing the size of its balance sheet in April 2022, mainly through reducing settlement balances, or liabilities.
"We expect to announce the end of QT and the associated restart of our business-as-usual asset purchases in the first half of this year," Gravelle said in a speech in Toronto.
The bank had previously indicated the program would end at some point in 2025. This would help the bank resume normal bond purchases and maintain a prudent level of settlement balances.
An effective settlement balance level gives the bank more room for injecting money during times of economic crisis.
Gravelle said the bank felt the ideal level of settlement balances was between C$50 billion and C$70 billion, below the current C$130 billion.
"We expect settlement balances to reach our new estimated range around mid-year," he said, adding that the bank would start normal asset purchase program around that time.
The asset purchase program does not mean that the bank is offering economic stimulus again as it did during the pandemic, he underlined.
"Our normal asset purchases before the pandemic were not QE (Quantitative Easing). And our normal asset purchases after QT ends will not be QE either," he added.
The composition of the assets will be broader, comprising not only Government of Canada bonds, but also government treasury bills and term repos.
The bank will aim to have term repos and treasury bills in almost the equal amount as its floating-rate liabilities, which will include settlement balances, he said.
The amount of government bonds te bank holds will also be ideally equal to the currency in circulation, he said, but cautioned that the ideal overall asset composition might not be achieved until around 2030.
The Government of Canada bond purchases would start toward the end of 2026 at the earliest, he said.
((Reuters Ottawa bureau))
