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Curve Flattening Into Weekend


Expiries for Mar08 NY cut 1000ET (Source DTCC)

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The Bank of Canada will scale back QE again as soon as April and wind up the program by mid-2022, an MNI survey found, potentially well ahead of other major central banks in finding the exit.

All five economists who responded to an email survey over the last week said asset purchases will end sometime in 2022, with three of those saying the exit will come early or in the first half of the year.

The BOC began buying at least CAD5 billion of assets a week last year, later tapering it to CAD4 billion while shifting to longer-term securities and saying that provided just as much stimulus. Governor Tiff Macklem says the program will continue until the economic rebound is well underway, and he doesn't expect conditions for a rate increase until into 2023.

Investors seeing QE scaled back cite vaccines due to be widely available by this fall in Canada, and a pace of purchases that could impair markets with the BOC on a path to own half of the government's bonds. While downplaying the market friction argument, Macklem has said it's logical to move on QE before raising the 0.25% policy interest rate.


The MNI survey has three of five respondents saying the next QE tapering could be as soon as the April meeting. The other two said it would be as soon as July. The next policy decision is on Wednesday.

Whenever the next tapering comes, it will slow the pace to CAD3 billion, according to four of five of the responses. The other economist saw a reduction to CAD2 billion. The survey didn't show a strong view of whether the BOC would again adjust the duration of the assets being purchased.

Shutting down QE by 2022 would likely make Canada an outlier given the Fed, ECB and BOJ have taken much longer to fully scale back, or have never really done so, since the global financial crisis. Canada avoided using pure QE after 2008, and the financial system has been resilient to banking or housing collapses. In this downturn, the government has also provided the biggest fiscal stimulus among major economies, taking pressure off of monetary policy.

Chart source: BOC website

The BOC's balance sheet has swelled to around a record CAD550 billion since last spring when the Covid-19 pandemic hit, including around CAD300 billion of federal bonds and CAD150 billion of repos.

Even if QE is halted, it could still take much longer for the balance sheet to return to the CAD125 billion seen before the pandemic. The BOC has said it could re-invest some proceeds of maturing assets while outright sales of its balance sheet holdings would be on the more aggressive end of its potential moves.