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BoC Shuts Down Discussion On Early End Of QT

BOC
  • The Bank of Canada still expects to continue QT until reaching settlement balances in the range of CAD20B-CAD60B. 
  • "We are also confident that QT was not a main driver of the pressures we saw in overnight repo markets earlier this year. But we recognize there is a risk that QT may need to end earlier than expected."
  • A BoC analytical note said strain in markets instead came from expectations of aggressive cuts increasing demand for long-term government bonds. 
  • The Bank expects to reach target "sometime in 2025" compared to the initial estimate of the end of 2024 to first half of 2025. The BoC cited changes to the expected level of future GoC deposits as the reason for the shift. 
  • If the economy slows sharply, the Bank says QT could cease at least temporarily. 
  • "Before we get to our steady-state balance sheet, there will be a multi-year transition period as we replenish our stock of money market instruments—t-bills and term repos. So we expect that our purchases will tilt toward shorter-term assets for some time."
  • The Bank is considering whether they will buy government T-bills and bonds in the primary or secondary markets once normal operations return. 
  • The Bank will no longer purchase Canada Mortgage Bonds.
  • The Bank reiterated that debate has shifted from whether to hike to how long to hold. 
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  • The Bank of Canada still expects to continue QT until reaching settlement balances in the range of CAD20B-CAD60B. 
  • "We are also confident that QT was not a main driver of the pressures we saw in overnight repo markets earlier this year. But we recognize there is a risk that QT may need to end earlier than expected."
  • A BoC analytical note said strain in markets instead came from expectations of aggressive cuts increasing demand for long-term government bonds. 
  • The Bank expects to reach target "sometime in 2025" compared to the initial estimate of the end of 2024 to first half of 2025. The BoC cited changes to the expected level of future GoC deposits as the reason for the shift. 
  • If the economy slows sharply, the Bank says QT could cease at least temporarily. 
  • "Before we get to our steady-state balance sheet, there will be a multi-year transition period as we replenish our stock of money market instruments—t-bills and term repos. So we expect that our purchases will tilt toward shorter-term assets for some time."
  • The Bank is considering whether they will buy government T-bills and bonds in the primary or secondary markets once normal operations return. 
  • The Bank will no longer purchase Canada Mortgage Bonds.
  • The Bank reiterated that debate has shifted from whether to hike to how long to hold.