As largely expected – and forewarned – amid ‘excess’ liquidity and a ‘functioning’ market, the Bank of Canada has today confirmed it will end all its pandemic emergency liquidity programs.
“We can take these steps because now there is ample system-wide liquidity for financial institutions to draw from,” Deputy Governor Gravelle said in prepared remarks before the CFA Society Toronto.
The bank left its main government of Canada bond purchase program intact but Gravelle provided some insight into how quantitative easing will eventually be scaled back:
BoC is evaluating how the process of adjusting ongoing purchases of GoC bonds could unfold.
Adjusting the pace of QE purchases won’t necessarily mean that we have changed our views about when we will need to start raising the policy interest rate.
Eventually, we will reach a point where the outcomes outlined in our forward guidance have been achieved, then we will need to start raising our policy rate to achieve our inflation objective.
We will review extraordinary actions taken in response to the pandemic to assess whether they were calibrated ideally; whether we could do anything differently in future episodes of market stress.
We are looking at whether any further structural reforms could be made to improve financial system resilience and minimize the likelihood that extraordinary tools will be needed in the future.
We expect our balance sheet to decline to about c$475 billion by the end of April.
Gravelle finally noted the bank can reactivate any market programs should stressed conditions ever re-emerge.
The reaction was muted to say the least with the Loonie managed a small spike against the USD…
How long until The Fed does the same?