Bank to reduce pace of asset purchases

Operational changes announced by the Bank of Canada this week mean the pace of expansion of its balance sheet is set to slow. The Bank’s assets have surged by $420bn, or 350%, since February, a rise equivalent to 18% of GDP. The pace of expansion picked up last week, but the big picture remains that it has been on a downward trend since early April. In the past four weeks, the Bank has purchased an average of $12bn of government debt securities per week, through both its Government Bond Purchase Program (GBPP) and because it has been taking a higher-than-normal 40% of the bonds and bills offered by the government at primary auction. The Bank announced this week that it will henceforth only take 20% of the bonds and bills offered and, in any case, as the worst of the crisis is behind us the government’s debt issuance will decline as well. The Bank also announced this week that it is reducing the share of provincial bills that it buys at primary auction from 40% to 20%, and we would not be surprised if it soon trims some of its other programs. While these changes mean the pace of balance sheet expansion will slow further, our expectation that the Bank will continue its main asset purchase program for at least the next 12 months suggest its asset holdings will nevertheless continue to increase.