MNI POLICY: BOC Balance Sheet Grows to Record CAD562B

The Bank of Canada's balance sheet grew to a record CAD562 billion last month despite expectations for a near-term decline in size of asset holdings, as federal bonds were added while treasury bills and repos were relatively stable, central bank figures showed.

Federal bond holdings were CAD324 billion as of Jan. 27, up from CAD318 billion a week earlier and CAD307 billion at the end of December. Repos were CAD154 billion on Jan. 27, from CAD155 billion a week earlier.

T-bills declined to CAD49.6 billion from CAD50.3 billion a week earlier and CAD53.0 billion on Dec. 30.

Governor Tiff Macklem last month affirmed asset purchases of at least CAD4 billion a week could be adjusted if the economy advances as it expects, while holding a record low 0.25% interest rate and saying vaccine breakthroughs made the medium-term growth outlook more secure. The BOC began buying CAD5 billion a week of assets last year before scaling back to CAD4 billion.

Sources have told MNI the BOC may scale back QE again in April and there's some potential for the purchases to end when the recovery becomes even clearer. The BOC has said QE will continue until the recovery is well underway, and that it won't be until into 2023 before the economy returns to its potential and inflation stabilizes around its 2% target.

The BOC's economic forecast paper last month said the balance sheet may shrink in coming months as CAD140 billion of t-bills and term repos come due, though that's not a good measure of the amount of stimulus. Macklem told reporters in response to a question from MNI that reduced holdings of short-term assets reflect the passing of the market squeeze at the start of the pandemic, and the longer-term government bond purchases being made now are a sign of stimulus at work.