Bank of Canada’s balance sheet to expand further

The asset purchase programs announced by the Bank of Canada in the past few weeks mean its balance sheet is set to expand much further. The Bank’s assets have already risen by $200bn since mid-March to $320bn as of last week, which is far in excess of the rise which occurred during the Global Financial Crisis. The increase mainly reflects the Bank’s repo operations, which have totalled $127bn. Future increases will be mainly due to purchases under its new Large-Scale Asset Purchase (LSAP) program, Corporate Bond Purchase Program (CBPP) and Provincial Bond Purchase Program (PBPP). The Bank has purchased $17bn of government debt securities under LSAP so far, but if the program remains in place throughout this year as we expect then they are likely to reach $150bn. The Bank has committed to buy $50bn of provincial bonds and a rather paltry $10bn of corporate bonds, but we suspect it will end up increasing the amount of corporate bonds that it eventually buys. All this suggests the Bank’s assets could rise by at least another $200bn by the end of the year. If financial institutions had not reduced their repos by then, that would result in asset holdings hitting over $500bn, or 22% of 2019 GDP.