Bank of Canada plans to raise interest rate before winding down quantitative easing program, Macklem says - The Globe and Mail | Canada News Media
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Bank of Canada plans to raise interest rate before winding down quantitative easing program, Macklem says – The Globe and Mail

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Bank of Canada governor Tiff Macklem provided the clearest picture to date about how the central bank plans to reduce monetary stimulus, setting up expectations for a possible cut in government bond purchases in October and saying that the bank expects to start raising interest rates before it entirely winds down its quantitative easing program.

In a Thursday speech, Mr. Macklem said the bank is approaching the “reinvestment phase” of its federal government bond buying program, also known as quantitative easing (QE). Since the start of the pandemic, the bank has been buying billions of dollars worth of government bonds every week in an attempt to lower yields on benchmark bonds and bring down borrowing costs across the economy.

When the bank arrives at the “reinvestment phase,” it will try to match its weekly bond purchases to the pace at which bonds it already owns are maturing – effectively stabilizing the size of the bank’s balance sheet. That will require buying between $4-billion and $5-billion worth of government bonds a month, down from around $2-billion a week, Mr. Macklem said.

He said that once the bank stabilizes its asset purchases, it may look to raise interest rates before further reducing the pace of bond buying.

“Eventually, when we need to reduce the amount of monetary stimulus, you can expect us to begin by raising our policy interest rate. What this all means is it is reasonable to expect that when we reach the reinvestment phase, we will remain there for a period of time, at least until we raise the policy interest rate,” Mr. Macklem said, according to the prepared text of the speech.

The speech comes a day after a rate decision where the bank decided to leave monetary policy unchanged. Most analysts expect the bank’s next reduction in bond buying to come in October. The bank has trimmed the size of the QE program three times since last year, making it one of the most aggressive central banks in the world in terms of cutting back emergency stimulus measures.

Another key detail of the speech was that the bank intends to reduce its purchases of government bonds on both the primary and secondary market. The QE program works by buying assets owned by private financial institutions. Alongside this, the bank also buys bonds straight from the government, mainly to offset banknote liabilities, not as a form of stimulus.

Currently, around 25 per cent of the bank’s weekly government bond purchases are primary market purchases, while 75 per cent are secondary market purchases.

“Much of the focus has understandably been on our large-scale secondary market bond purchases associated with QE. But during the reinvestment phase, we will reduce both our primary market purchases at Government of Canada bond auctions and our purchases in the secondary market. This will keep our total holdings of Government of Canada bonds roughly stable over time,” Mr. Macklem said.

Royce Mendes, senior economist at CIBC Capital Markets, said that Mr. Macklem’s speech was intended to highlight two points.

“First, tapering should not be considered monetary tightening. Rather, having a stable balance sheet should be viewed as maintaining the monetary stimulus already provided via QE, just not increasing it further,” Mr. Mendes wrote in a note to clients.

“Second, the beginning of the reinvestment phase will not necessarily mean that the central bank has changed its view on how long to keep the policy rate pinned down,” Mr. Mendes wrote.

The bank’s key policy rate has been at 0.25 per cent since the start of the pandemic. The bank has promised not to raise the policy rate until slack in the economy is absorbed. It currently estimates this to happen in the second half of 2022.

Alongside new details about the QE program, Mr. Macklem also gave his assessment of the economy, which was in line with the bank’s Wednesday rate announcement.

“The Governing Council continues to expect the economy to strengthen in the second half of 2021, although the fourth wave of COVID-19 infections and ongoing supply bottlenecks could weigh on the recovery,” he said .

Mr. Macklem noted the unexpectedly bad economic growth data Statistics Canada published last week. Statscan determined the economy shrank by 1.1 per cent on an annualized basis in the second quarter, which was 3 percentage points below the central bank’s forecast.

“Growth in the second quarter was affected by disruptions to global supply chains as well as the impact of necessary public health measures,” Mr. Macklem said, noting problems with automobile production and shipping bottlenecks.

“We expect these global supply chain problems will gradually be resolved, but it could take some time.”

On the topic of inflation, he reiterated the view that the recent run-up in prices is largely the result of “transitory” factors, although he said that “their persistence and magnitude are uncertain and we will be monitoring them closely.”

The year-over-year increase in the Consumer Price Index has been above the bank’s target range since May, hitting a decade high of 3.7 per cent in July.

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Telus prioritizing ‘most important customers,’ avoiding ‘unprofitable’ offers: CFO

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Telus Corp. says it is avoiding offering “unprofitable” discounts as fierce competition in the Canadian telecommunications sector shows no sign of slowing down.

The company said Friday it had fewer net new customers during its third quarter compared with the same time last year, as it copes with increasingly “aggressive marketing and promotional pricing” that is prompting more customers to switch providers.

Telus said it added 347,000 net new customers, down around 14.5 per cent compared with last year. The figure includes 130,000 mobile phone subscribers and 34,000 internet customers, down 30,000 and 3,000, respectively, year-over-year.

The company reported its mobile phone churn rate — a metric measuring subscribers who cancelled their services — was 1.09 per cent in the third quarter, up from 1.03 per cent in the third quarter of 2023. That included a postpaid mobile phone churn rate of 0.90 per cent in its latest quarter.

Telus said its focus is on customer retention through its “industry-leading service and network quality, along with successful promotions and bundled offerings.”

“The customers we have are the most important customers we can get,” said chief financial officer Doug French in an interview.

“We’ve, again, just continued to focus on what matters most to our customers, from a product and customer service perspective, while not loading unprofitable customers.”

Meanwhile, Telus reported its net income attributable to common shares more than doubled during its third quarter.

The telecommunications company said it earned $280 million, up 105.9 per cent from the same three-month period in 2023. Earnings per diluted share for the quarter ended Sept. 30 was 19 cents compared with nine cents a year earlier.

It reported adjusted net income was $413 million, up 10.7 per cent year-over-year from $373 million in the same quarter last year. Operating revenue and other income for the quarter was $5.1 billion, up 1.8 per cent from the previous year.

Mobile phone average revenue per user was $58.85 in the third quarter, a decrease of $2.09 or 3.4 per cent from a year ago. Telus said the drop was attributable to customers signing up for base rate plans with lower prices, along with a decline in overage and roaming revenues.

It said customers are increasingly adopting unlimited data and Canada-U.S. plans which provide higher and more stable ARPU on a monthly basis.

“In a tough operating environment and relative to peers, we view Q3 results that were in line to slightly better than forecast as the best of the bunch,” said RBC analyst Drew McReynolds in a note.

Scotiabank analyst Maher Yaghi added that “the telecom industry in Canada remains very challenging for all players, however, Telus has been able to face these pressures” and still deliver growth.

The Big 3 telecom providers — which also include Rogers Communications Inc. and BCE Inc. — have frequently stressed that the market has grown more competitive in recent years, especially after the closing of Quebecor Inc.’s purchase of Freedom Mobile in April 2023.

Hailed as a fourth national carrier, Quebecor has invested in enhancements to Freedom’s network while offering more affordable plans as part of a set of commitments it was mandated by Ottawa to agree to.

The cost of telephone services in September was down eight per cent compared with a year earlier, according to Statistics Canada’s most recent inflation report last month.

“I think competition has been and continues to be, I’d say, quite intense in Canada, and we’ve obviously had to just manage our business the way we see fit,” said French.

Asked how long that environment could last, he said that’s out of Telus’ hands.

“What I can control, though, is how we go to market and how we lead with our products,” he said.

“I think the conditions within the market will have to adjust accordingly over time. We’ve continued to focus on digitization, continued to bring our cost structure down to compete, irrespective of the price and the current market conditions.”

Still, Canada’s telecom regulator continues to warn providers about customers facing more charges on their cellphone and internet bills.

On Tuesday, CRTC vice-president of consumer, analytics and strategy Scott Hutton called on providers to ensure they clearly inform their customers of charges such as early cancellation fees.

That followed statements from the regulator in recent weeks cautioning against rising international roaming fees and “surprise” price increases being found on their bills.

Hutton said the CRTC plans to launch public consultations in the coming weeks that will focus “on ensuring that information is clear and consistent, making it easier to compare offers and switch services or providers.”

“The CRTC is concerned with recent trends, which suggest that Canadians may not be benefiting from the full protections of our codes,” he said.

“We will continue to monitor developments and will take further action if our codes are not being followed.”

French said any initiative to boost transparency is a step in the right direction.

“I can’t say we are perfect across the board, but what I can say is we are absolutely taking it under consideration and trying to be the best at communicating with our customers,” he said.

“I think everyone looking in the mirror would say there’s room for improvement.”

This report by The Canadian Press was first published Nov. 8, 2024.

Companies in this story: (TSX:T)

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TC Energy cuts cost estimate for Southeast Gateway pipeline project in Mexico

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CALGARY – TC Energy Corp. has lowered the estimated cost of its Southeast Gateway pipeline project in Mexico.

It says it now expects the project to cost between US$3.9 billion and US$4.1 billion compared with its original estimate of US$4.5 billion.

The change came as the company reported a third-quarter profit attributable to common shareholders of C$1.46 billion or $1.40 per share compared with a loss of C$197 million or 19 cents per share in the same quarter last year.

Revenue for the quarter ended Sept. 30 totalled C$4.08 billion, up from C$3.94 billion in the third quarter of 2023.

TC Energy says its comparable earnings for its latest quarter amounted to C$1.03 per share compared with C$1.00 per share a year earlier.

The average analyst estimate had been for a profit of 95 cents per share, according to LSEG Data & Analytics.

This report by The Canadian Press was first published Nov. 7, 2024.

Companies in this story: (TSX:TRP)

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BCE reports Q3 loss on asset impairment charge, cuts revenue guidance

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BCE Inc. reported a loss in its latest quarter as it recorded $2.11 billion in asset impairment charges, mainly related to Bell Media’s TV and radio properties.

The company says its net loss attributable to common shareholders amounted to $1.24 billion or $1.36 per share for the quarter ended Sept. 30 compared with a profit of $640 million or 70 cents per share a year earlier.

On an adjusted basis, BCE says it earned 75 cents per share in its latest quarter compared with an adjusted profit of 81 cents per share in the same quarter last year.

“Bell’s results for the third quarter demonstrate that we are disciplined in our pursuit of profitable growth in an intensely competitive environment,” BCE chief executive Mirko Bibic said in a statement.

“Our focus this quarter, and throughout 2024, has been to attract higher-margin subscribers and reduce costs to help offset short-term revenue impacts from sustained competitive pricing pressures, slow economic growth and a media advertising market that is in transition.”

Operating revenue for the quarter totalled $5.97 billion, down from $6.08 billion in its third quarter of 2023.

BCE also said it now expects its revenue for 2024 to fall about 1.5 per cent compared with earlier guidance for an increase of zero to four per cent.

The company says the change comes as it faces lower-than-anticipated wireless product revenue and sustained pressure on wireless prices.

BCE added 33,111 net postpaid mobile phone subscribers, down 76.8 per cent from the same period last year, which was the company’s second-best performance on the metric since 2010.

It says the drop was driven by higher customer churn — a measure of subscribers who cancelled their service — amid greater competitive activity and promotional offer intensity. BCE’s monthly churn rate for the category was 1.28 per cent, up from 1.1 per cent during its previous third quarter.

The company also saw 11.6 per cent fewer gross subscriber activations “due to more targeted promotional offers and mobile device discounting compared to last year.”

Bell’s wireless mobile phone average revenue per user was $58.26, down 3.4 per cent from $60.28 in the third quarter of the prior year.

This report by The Canadian Press was first published Nov. 7, 2024.

Companies in this story: (TSX:BCE)

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