With the vaccine rollout underway and better-than expected labour market results, the Bank of Canada may begin to pull back the rate of its bond purchases as early as next month.
Nearly a year since the onset of the pandemic, Canada’s central bank may be pulling back the reigns on its bond purchases in April, sending the first major signal that the economy no longer requires as much help to emerge from the worst recession in modern history. According to strategists at some of Canada’s largest banks, the Bank of Canada could reduce its weekly bond purchases from $4 billion to $3 billion, especially following the latest jobs report that put Canada’s unemployment rate at 8.2% in February. “We’re expecting the reduction in asset purchases in April will coincide with less new issuance by the government,” suggested Royal Bank of Canada senior economist Josh Nye.
Canada’s federal government is also expected to issue less bonds in the upcoming fiscal year compared to 2020/2021, when it ran a record-high budget deficit. Last Wednesday, the Bank of Canada upgraded its first quarter 2021 forecast, noting that the economy is has shown signs of better-than-expected resiliency despite the second wave of Covid-19. A reduction in bond purchases would prove to be supportive of Canada’s dollar, which has been performing well against its G10 counterparts so far this year.
Indeed, if such a decision does materialize, it would put the Bank of Canada at odds with some of the policies currently being pushed by other major central banks, including the Federal Reserve and the European Central Bank, both of which have insisted they will continue or even increase the rate of bond purchases.
Information for this briefing was found via the Canadian Press. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.