The Bank of Canada has outlined a plan to reduce the support it has been providing to the economy during the pandemic.
The central bank has provided guidance into how it will slow purchases of government bonds as the economic recovery accelerates in coming months, indicating that it could begin doing so as soon as April.
In a speech, Deputy Governor Toni Gravelle said the central bank is winding down emergency liquidity programs it deployed to support markets when the coronavirus hit a year ago, including programs to buy provincial and corporate debt.
Gravelle also provided insights into how the central bank plans to scale back its main government bond purchasing program -- including a pledge that any tapering will be gradual.
The Bank of Canada has been buying a minimum of $4 billion in federal government bonds each week to help keep borrowing costs low. Economists say that pace may no longer be warranted, with an outlook that appears to show the economy growing.
The central bank also wants to avoid taking ownership of too large a share of the outstanding bond market. Currently, the Bank of Canada owns a little more than 35% of the total market of outstanding Government of Canada bonds.
Bank of Canada Governor Tiff Macklem has said that when holdings rise above 50%, market functioning could get distorted.
In prepared remarks, Gravelle highlighted how the tapering process will work, indicating the central bank is seriously considering the option. He said the process will be "gradual" and conclude with net purchases at zero when the "recovery is well underway."
