MNI: BOC's Macklem Sees Little Reason to Change Pace Of QT

Bank of Canada Governor Tiff Macklem on Friday suggested quantitative tightening is likely to continue for a while on the current path of allowing maturing securities to roll off the central bank’s books.

It could make sense to slow the pace of QT as that policy nears its conclusion, Macklem said on a call with reporters from IMF meetings in Washington. The Bank has said government bonds purchased during the Covid pandemic could unwind around the end of next year or the first half of 2025, while a new ample reserves policy may keep up to an extra CAD60 billion of settlement balances in the system.

“It’s operating in a very predictable way,” Macklem said of the current QT policy. At some point the Bank will need to go back to more normal balance-sheet operations, though the timing isn’t exactly clear, he said. “There’s some uncertainty about that, and certainly as you get closer you might want to slow down the pace of QT.”

Even in a case where the central bank cuts interest rates, it's not a given the pace of QT would have to change, Macklem said. In a scenario where a deep economic slump required a quick drop in interest rates, it could make sense to pause QT to make monetary policy more cohesive, he said.

Macklem's comments also mostly reiterated the thinking around Wednesday's decision to hold the policy interest rate at 4.5%, saying it's too soon to think about a rate cut seen by some investors.

The Governor said based on talks at the IMF it's clear that "central banks stand ready to provide emergency liquidity if needed" for any knock-on effects of the collapse of Silicon Valley Bank and Credit Suisse. The surprising speed of withdrawals from SVB and what that may mean about regulations is something worth further study, he said.