Canada Monetary policy

Bank of Canada to calibrate QE program

At today’s policy meeting the Bank of Canada maintained its target for the overnight rate at the effective lower bound of ¼ percent, citing lower inflation and loss of momentum in economic recovery from the sharp declines due to economic closure. “The Bank is maintaining its extraordinary forward guidance, reinforced and supplemented by its quantitative easing (QE) program”.

However The Bank is to calibrate the QE program to shift purchases towards longer-term bonds. Those bonds have more direct influence on the borrowing rates that are more related to long term spending and investment by consumers and business.

Second, the Bank is to calibrate the size of QE program, to gradually reduce to at least $4 billion a week, from $5 billion or more. The reduction seems logical given recovery is somewhat on the way. I think the Bank has concerns on saturation of monetary policies in the future, as the fund rates has reached lower bound and the Bank has already owned one third of government bond. The later is a more viable QE mechanism, though the Bank could buy quality corporate bond if there is not enough government bond to buy.

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