MNI POLICY: BOC Balance Sheet Growth Stalls as Repos Roll Off

By Greg Quinn

     OTTAWA (MNI) - The Bank of Canada's balance sheet was little changed at a

record CAD529 billion this week as gains in federal bonds and bills were mostly

offset by a reduced stock of corporate repos, an imbalance likely to continue

with the government projecting a CAD343 billion deficit.

     Federal bond holdings climbed to CAD173 billion from CAD167 billion, faster

than the minimum CAD5 billion a week the BOC has pledged to acquire until the

economic recovery is well underway. Canadian t-bill assets rose to CAD136

billion from CAD130 billion.

     Holdings of repos fell to CAD195 billion from CAD205 billion, the lowest

since May 13 and down from a peak of CAD211 billion about a month ago. Repo

holdings had swelled from CAD15 billion in mid-March before the Covid-19

pandemic froze markets.

     Governor Tiff Macklem is expected to affirm in a rate decision next

Wednesday that bold QE is needed even after markets stabilize to pull the

economy out of its deepest slump since the Great Depression. The purchases will

help as the government begins consultations on plans to sell a record amount of

long-term bonds to avoid rollover risk and lock in low yields. 

     The balance sheet stood at CAD528 billion as of July 1. Programs to buy up

to CAD50 billion of provincial government bonds and CAD10 billion of corporates

remain modest, with purchases to date of CAD5.2 billion and CAD140 million,

respectively.

--MNI Ottawa Bureau; +1 613-314-9647; email: greg.quinn@marketnews.com

[TOPICS: M$C$$$,MC$$$$,MK$$$$,M$$CR$,M$$FI$,M$$MO$,MN$FI$,MN$MM$,MN$RP$]