Bank of Canada Dials Back Bond Purchases, Reiterates Economic Forecast

The Bank of Canada has taken yet another step to normalize its emergency monetary policies, amid a renewed optimistic outlook on the speed of the economic recovery.

As widely expected, Bank of Canada policy makers led by Tiff Macklem announced on Wednesday that the central bank will taper its weekly government debt purchases from $3 billion to $2 billion. The bank also kept the overnight rate unchanged at 0.25%, while reiterating its previous guidance of refraining from a rate hike until at least the second half of 2022.

The latest decision to reduce bond purchases is in line with the central bank’s desire to return to a state of normalized monetary policy— putting it significantly ahead of its peers in terms of unwinding stimulus measures. This marks the third time that policy officials have pared back the asset purchase program, further bolstering expectations that the Bank of Canada will be the first among developed economies to raise interest rates.

Despite the Bank of Canada’s dialling back of asset purchases, the central bank contends that the country’s economy still has a ways to go before excess capacity is fully absorbed. The bank’s policy makers are anticipating that excess demand levels will not be reached until at least 2023, and although vaccine progress and the lifting of pubic health restrictions have provided a significant boost, the spread of Covid-19 variants continue to remain a risk.

Following the Bank of Canada’s announcement, the Canadian dollar erased previous gains, and is trading at around $1.25 per US dollar.

Information for this briefing was found via the Bank of Canada. 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.

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