Bank of Canada Again Tapers Bond Purchases

On Wednesday, the Bank of Canada (BoC) released its monetary policy statement. While the central bank left interest rates on hold, it again reduced the amount of weekly bond purchases, from $3 billion to $2 billion, citing a "continued progress towards recovery and the Bank’s confidence in the strength of the Canadian economic outlook," in its third round of reducing monetary easing.

Similar to many other countries, the central bank drastically increased its monetary policy purchases in March of last year In efforts to offset the economic damage from COVID. The effect of the bond purchases is to increase the overall money supply. The Canadian central bank now owns more than 30% of the country’s federal debt, having bought nearly 80% of the bonds issued in the past fiscal year.

Canada has been more progressive in cutting the amount of easing compared to most other developed countries. The bank’s first taper announcement came in October of last year, when the central bank cut purchases of government bonds from $5 billion a week to $4 billion a week and ended buying mortgage-backed securities. Then in March, it started unwinding its liquidity facilities, including repos, in efforts to reduce the country’s $575-billion balance sheet. Then in April, the BoC again reduced its purchases to $3 billion, citing the heated housing market.

These reductions have dropped the country’s total assets to $484 billion July 7, with $400 billion in government bonds. As the country prepares to reopen its borders and ends another round of social restrictions, 2021 Gross Domestic Product growth is expected to be around 6%, and 4.5% in 2022. Inflation is expected to remain above 3% through the remainder of 2021, and ease back toward 2% in 2022.