Bank of Canada to End Pandemic-Related Liquidity Programs

The Bank of Canada has issued further insight into its plans to gradually withdrawal support as Canada’s economic recovery continues to accelerate, giving rise to expectations that the plan could be put into motion as early as next month.

In a virtual speech to the CFA Society on Tuesday, deputy governor Toni Gravelle said the BoC will begin phasing out several lending and buying facilities that were put into motion during the height of the pandemic crisis. Citing significant improvements in market conditions, Gravelle said the central bank will discontinue its main short-term financing program in May, and will not extend three other asset purchase programs that are slated to expire come April, including commercial paper, corporate bonds, and provincial bonds.

By the end of April, it is forecast that Government of Canada bonds will make up over 70% of the BoC’s balance sheet, with a value of around $350 billion. Gravelle noted that the central bank will also reduce the rate of its federal bond purchases to maintain monetary stimulus at current levels. Eventually, some time after this, the BoC would consider raising its key interest rate from 0.25%, which will likely not happen until at least 2023.

Gravelle also said the BoC will analyze its previous actions to determine if any changes are necessary in the central bank’s response to future market distress. He revealed that senior officials are currently determining whether or not Canada’s financial system is in need of structural reforms to lessen the likelihood of another unprecedented central bank intervention. “When central banks provide liquidity, we have to do so in ways that don’t encourage market participants to take undue risks in normal times,” Gravelle explained. “Our actions must be targeted at specific issues and scaled back as those are resolved,” he continued.

Information for this briefing was found via the BoC. 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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