Bank of Canada ends QE

Bank of Canada ends quantitative easing, signals interest rate hikes could come sooner

THE BANK OF Canada ended its bond-buying stimulus program and accelerated the potential timing of future interest rate increases amid worries that supply disruptions are driving up inflation. 

In a statement on Wednesday, policy makers led by Governor Tiff Macklem announced they would stop growing holdings of Canadian government bonds, ending a quantitative easing program that has poured hundreds of billions into the financial system since the start of the Covid-19 pandemic.

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Macklem maintained his pledge not to raise the benchmark overnight policy rate until the recovery is complete, but officials now believe that will happen in the “middle quarters” of 2022, rather than the second half of next year as previously thought.

The language will reinforce market expectations the Bank of Canada is poised to quickly pivot to a tightening cycle amid growing price pressures. Investors are anticipating the Canadian central bank will start raising interest rates within the next six months, with markets pricing in four rate hikes next year.

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“Shortages of manufacturing inputs, transportation bottlenecks, and difficulties in matching jobs to workers are limiting the economy’s productive capacity,” policy makers said in the statement. “Although the impact and persistence of these supply factors are hard to quantify, the output gap is likely to be narrower than the bank had forecast.”

The Bank of Canada has been using two major tools to keep borrowing costs low: maintaining its policy interest rate near zero and buying up Canadian government bonds from investors to keep longer-term borrowing costs in check.

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The benchmark interest rate was left unchanged at 0.25 per cent on Wednesday. The central bank has increased its bond holdings by about $350 billion since the start of the pandemic. Bank of Canada ends QE Bank of Canada Monetary Policy

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