BoC Carefully Ending Liquidity Programs as Economy Recovers

BoC Carefully Ending Liquidity Programs As Economy Recovers

The Bank of Canada will slowly taper off multiple buying and lending programs they had first introduced for credit fluidity. While markets conditions ameliorate progressively, they believe it is an opportune time.

Toni Gravelle, BoC's deputy governor announced today that the bank will put an end to several liquidity programs, starting in early April.

He said the bank can begin this process corporate borrowers have "unfettered access to fully functional debt markets." Many of these borrowers are at in pre-pandemic shape, thus making it a good time to pull the plug.

Details of each transaction will be released publicly by the end of June. The central bank had originally said pandemic aid programs would continue as long as there is need. Today's announcement indicates the economy is outperforming initial anticipations.

Just over a year ago, the central bank began buying corporate and provincial bonds and adjusted lending standards as the economy went into free-fall. With a looser credit system, companies were able to finance and continue operations as would-be investors became apprehensive - the BoC began buying government bonds at the same time.

The Bank of Canada's balance sheet, valued at about $350 billion - is said to be comprised of over 70 percent of government of Canada bonds by April's end.

Gravelle said he central bank will slow its pace of federal bond purchases to uphold and no longer raise the amount of financial stimulus flowing through the economy. It will be a while yet until the the BoC would consider raising its key interest rate of 0.25 percent - something it doesn't expect to happen until well into 2023.

Craig Alexander, Deloitte chief economist believes alterations to quantitative easing will should only be into effect once economic recovery is examined and tested.

"If that large pool of savings that has been accumulated suddenly starts to flood into the economy and consumers go on a buying spree, well, then obviously the Bank of Canada is going to have to accelerate the pace of their adjustment in terms of winding down the bond-buying program and raising rates," He believes it will be challenging to ensure correct timing and there will be a lot hinging on how strong the recovery is.