Bank of Canada Likely to Conclude Quantitative Tightening in Coming Months
Bank of Canada Signals End to Quantitative Tightening Program by Mid-Year
The Bank of Canada (BoC) will soon conclude its quantitative tightening (QT) program, Deputy Governor Toni Gravelle announced on Thursday. This move positions the BoC among the first central banks globally to halt the unwinding of pandemic-era asset purchases.
Since April 2022, the BoC has been shrinking its balance sheet, primarily by reducing settlement balances, which are key liabilities. The bank had previously indicated the QT program would end around 2025, paving the way for a return to normal bond purchases and ensuring a prudent level of settlement balances.
Gravelle emphasized that an optimal level of settlement balances—estimated between C$50 billion and C$70 billion—offers the bank flexibility to inject liquidity during economic crises. This range is significantly lower than the current balance of C$130 billion.
“We expect settlement balances to reach our new estimated range around mid-year,” Gravelle said. At that time, the BoC plans to resume normal asset purchases. However, he clarified this does not signal a return to the pandemic-era economic stimulus.
“Our normal asset purchases before the pandemic were not QE (Quantitative Easing). And our normal asset purchases after QT ends will not be QE either,” Gravelle stated.
The composition of future asset purchases will include a broader mix, such as Government of Canada bonds, government treasury bills, and term repos. Gravelle noted that term repos and treasury bills would aim to match the amount of floating-rate liabilities, including settlement balances.
Over the longer term, the bank intends to hold government bonds in amounts approximately equal to the currency in circulation. However, Gravelle cautioned that achieving the ideal overall asset composition might take until 2030.
Government of Canada bond purchases are projected to resume in late 2026 at the earliest, he added.
This anticipated shift marks a significant milestone in the BoC’s efforts to normalize its monetary policy following extraordinary measures during the pandemic.
