Bank of Canada expects to end quantitative tightening in first half of 2025
The Bank of Canada expects to end quantitative tightening during the first half of this year and will return to more normal levels of asset purchasing.
“We expect to announce the end of QT and the associated restart of our business-as-usual asset purchases in the first half of this year,” said Bank of Canada deputy governor Toni Gravelle, during remarks to VersaFi, in Toronto. “Given this timeline, I expect we will be the first major central bank, or among the first, to finish unwinding its pandemic-related QE asset purchases.”
Settlement balances, also known as central bank reserves, peaked at $395 billion during the pandemic. This was thanks to the central bank’s decision to implement quantitative easing (QE), when the central bank purchases government bonds and financial assets to stimulate economic activity. The Bank of Canada ended QE in October 2021 and began the process of quantitative tightening (QT) in April 2022, by letting the central bank’s bond holdings roll off the balance sheet when they matured, without replacing them.
Now, the central bank reserves currently sit at $130 billion. Originally, the central bank thought QT would end when the settlement balances declined to the $20 to $60 billion range. However, after speaking to banks and members of Canada’ high-value wholesale payment system, precautionary demand for settlement balances was higher than what was initially estimated by the Bank of Canada.
“Due to our updated assessment of precautionary demand, we have revised the range upward to between $50 to $70 billion,” said Gravelle.
Most of the central bank’s asset purchases are comprised of Bank of Canada bonds, with a large portion of those bonds set to mature on Sept. 1, 2025. To maintain the balance
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