MNI POLICY: BOC Balance Sheet Record CAD464B on Govt Debt

By Greg Quinn

     OTTAWA (MNI) - The Bank of Canada's balance sheet grew CAD21.7 billion this

week to a record CAD464 billion on government debt and repos to aid markets

strained by Covid-19.

     Central bank holdings of federal t-bills rose to CAD104 billion from

CAD91.7 billion, and Canadian bonds to CAD133 billion from CAD125 billion. The

BOC also held another CAD7.9 billion of provincial debt, reflecting early weeks

of plans to buy CAD50 billion of local government bonds and 40% of their

money-market paper. 

     Governor Stephen Poloz told lawmakers Monday it will be a while before the

economic recovery is advanced enough to scale back a pledge to buy at least CAD5

billion a week of federal bonds. While a good deal of purchases are assets due

in a year that can be taken off the balance sheet, the BOC is also prepared to

do more if markets show more strain, Poloz said.

     The bond purchases ease the strain of financing a federal deficit that

Parliament's budget officer said will reach a record CAD260 billion. That's

tracking to around 15% of GDP. 

     --NEW GOVERNOR

     The BOC will likely hold its key lending rate at 0.25% on June 3, and some

economists say one potential change is boosting the facility buying up to CAD10

billion of corporate bonds. Tiff Macklem who takes over next week has echoed the

need for aggressive asset purchases to support markets. 

     Repos remained the bank's biggest single holding at CAD204 billion, up from

CAD201 billion last week. 

     The balance sheet now equals 20% of first-quarter GDP annualized. Through

last month, the BOC's holdings of federal bonds were 17% of the total stock. 

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

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