By Ketki Saxena
Investing.com – In a speech at the National Bank Financial Services Conference in Montreal, Deputy Governor Toni Gravelle said that the Bank of Canada’s quantitative tightening will likely end in late 2024 or the first half of 2025.
At that stage, settlement balances will have reached a range of $20 billion (US$14.7 billion) to $60 billion, from the current level of roughly $200 billion. The level would put the size of the balance sheet at about 1% or 2% of Canada’s gross domestic product.
“It’s important to remember we’re still working to bring aggregate supply and demand back into balance. Our main tool for doing this is our policy rate,” Gravelle noted. “But our balance sheet must continue to normalize to remove the support it provides to monetary policy.”
Once this threshold has been met, the Bank will begin buying assets again.
However, the BoC deputy governor noted that we are unlikely to see quantitative easing at the scale of what was carried out during the Covid-19 pandemic.
Gravelle iterated, “I want to be clear that the bar is very high for us to use large-scale GOC bond purchases to support market functioning again”.
Today’s announcement marks the first time the Bank of Canada has stated an end date to its quantitative tightening program, which began in April 2022.
In his speech, Gravelle also touched on the recent/ongoing banking crisis, assuring that Canada’s financial system remains in a strong position, and has “a well-earned international reputation for stability,”
However, he did note that Bank of Canada policymakers “will consider the macroeconomic impact of this evolving situation” , and remain “Ready to act in the event of severe market-wide stress and provide liquidity support to the financial system.”