In a speech, deputy governor Toni Gravelle said Tuesday the bank will suspend or discontinue market liquidity-focused programs beginning early April and then into May.
He said the bank can take these steps now because corporate and provincial borrowers have “unfettered access to fully functional debt markets.”
Gravelle added that credit spreads for most of these borrowers are at or below pre-pandemic levels, making it clear the bank’s involvement is no longer required.
The details of each transaction will be made public at the end of June.
The central bank had said it would adjust its pandemic programs as conditions required and the announcement Tuesday adds another sign that the economy is performing better than anticipated.
One year ago, the central bank became a lender of last resort when it started buying corporate and provincial bonds, and adjusted its lending rules to banks as the economy went into a nosedive.
The idea was to keep the plumbing of the credit system free from blockages so companies could finance operations as investors got cold feet.
At the same time as it started helping banks lend money, and improve market conditions for provinces and companies issuing debt, it also started buying federal government bonds as investors sold those as well.
What started out as a market functioning program turned into a quantitative easing program, Gravelle said, meaning the bank is now using the purchases to help lower borrowing costs for households and businesses.
By the end of April, government of Canada bonds are expected to make up more than 70 per cent of the central bank’s balance sheet, valued at roughly $350 billion.
The central bank will eventually wind down the pace of its federal bond purchases to maintain, but no longer increase, the amount of monetary stimulus in the economy, Gravelle said in the speech to CFA Society Toronto.
It would be some time after that the bank would look at raising its key interest rate from 0.25 per cent, which the Bank of Canada doesn’t foresee happening until 2023.
Bank of Canada issues warning about overheated housing market
Deloitte Canada chief economist Craig Alexander said adjustments to the quantitative-easing program will have to take into account how strong the recovery is, including how much the savings households accumulated through the pandemic gets turned into consumer spending.
“If that large pool of savings that has been accumulated suddenly starts to flood into the economy and consumers go on a buying spree, well, then obviously the Bank of Canada is going to have to accelerate the pace of their adjustment in terms of winding down the bond-buying program and raising rates.”
“It’s going to be very difficult to the Bank of Canada to time this, and a lot will depend on just how robust the recovery is.”
Gravelle said the central bank will review the actions it took to see what, if any, changes are required to respond to future episodes of market stress.
He added that senior officials are also looking at whether the country’s financial system needs structural reforms to minimize the likelihood that the central bank would have to step in again with what Gravelle called extraordinary actions.
“When central banks provide liquidity, we have to do so in ways that don’t encourage market participants to take undue risks in normal times,” Gravelle said in the text of his speech released by the bank.
“Our actions must be targeted at specific issues and scaled back as those are resolved.”
© 2021 The Canadian Press
CANADA STOCKS – TSX ends flat at 19,228.03
* The Toronto Stock Exchange’s TSX falls 0.00 percent to 19,228.03
* Leading the index were Corus Entertainment Inc <CJRb.TO>, up 7.0%, Methanex Corp, up 6.4%, and Canaccord Genuity Group Inc, higher by 5.5%.
* Lagging shares were Denison Mines Corp, down 7.0%, Trillium Therapeutics Inc, down 7.0%, and Nexgen Energy Ltd, lower by 5.7%.
* On the TSX 93 issues rose and 128 fell as a 0.7-to-1 ratio favored decliners. There were 26 new highs and no new lows, with total volume of 183.7 million shares.
* The most heavily traded shares by volume were Toronto-dominion Bank, Nutrien Ltd and Organigram Holdings Inc.
* The TSX’s energy group fell 1.61 points, or 1.4%, while the financials sector climbed 0.67 points, or 0.2%.
* West Texas Intermediate crude futures fell 0.44%, or $0.26, to $59.34 a barrel. Brent crude fell 0.24%, or $0.15, to $63.05 [O/R]
* The TSX is up 10.3% for the year.
Canadian dollar outshines G10 peers, boosted by jobs surge
By Fergal Smith
TORONTO (Reuters) – The Canadian dollar advanced against its broadly stronger U.S. counterpart on Friday as data showing the economy added far more jobs than expected in March offset lower oil prices, with the loonie also gaining for the week.
Canada added 303,100 jobs in March, triple analyst expectations, driven by the recovery across sectors hit by shutdowns in December and January to curb the new coronavirus.
“The Canadian economy keeps beating expectations,” said Michael Goshko, corporate risk manager at Western Union Business Solutions. “It seems like the economy is adapting to these closures and restrictions.”
Stronger-than-expected economic growth could pull forward the timing of the first interest rate hike by the Bank of Canada, Goshko said.
The central bank has signaled that its benchmark rate will stay at a record low of 0.25% until 2023. It is due to update its economic forecasts on April 21, when some analysts expect it to cut bond purchases.
The Canadian dollar was trading 0.3% higher at 1.2530 to the greenback, or 79.81 U.S. cents, the biggest gain among G10 currencies. For the week, it was also up 0.3%.
Still, speculators have cut their bullish bets on the Canadian dollar to the lowest since December, data from the U.S. Commodity Futures Trading Commission showed. As of April 6, net long positions had fallen to 2,690 contracts from 6,518 in the prior week.
The price of oil, one of Canada‘s major exports, was pressured by rising supplies from major producers. U.S. crude prices settled 0.5% lower at $59.32 a barrel, while the U.S. dollar gained ground against a basket of major currencies, supported by higher U.S. Treasury yields.
Canadian government bond yields also climbed and the curve steepened, with the 10-year up 4.1 basis points at 1.502%.
(Reporting by Fergal Smith; Editing by Andrea Ricci)
Canadian dollar rebounds from one-week low ahead of jobs data
By Fergal Smith
TORONTO (Reuters) -The Canadian dollar strengthened against its U.S. counterpart on Thursday, recovering from a one-week low the day before, as the level of oil prices bolstered the medium-term outlook for the currency and ahead of domestic jobs data on Friday.
The Canadian dollar was trading 0.4% higher at 1.2560 to the greenback, or 79.62 U.S. cents. On Wednesday, it touched its weakest intraday level since March 31 at 1.2634.
“We have seen partial retracement from the decline over the last couple of days,” said Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets.
“With oil prices where they are – let’s call WCS still at roughly $49 a barrel – I still think CAD has room to strengthen over the medium term and even over a one-week horizon.”
Western Canadian Select (WCS), the heavy blend of oil that Canada produces, trades at a discount to the U.S. benchmark. U.S. crude futures settled 0.3% lower at $59.60 a barrel, but were up nearly 80% since last November.
The S&P 500 closed at a record high as Treasury yields fell following softer-than-anticipated labor market data, while the U.S. dollar fell to a two-week low against a basket of major currencies.
Canada‘s employment report for March, due on Friday, could offer clues on the Bank of Canada‘s policy outlook. The central bank has become more upbeat about prospects for economic growth, while some strategists expect it to cut bond purchases at its next interest rate announcement on April 21.
On a more cautious note for the economy, Ontario, Canada‘s most populous province, initiated a four-week stay-at-home order as it battles a third wave of the COVID-19 pandemic.
Canadian government bond yields were lower across a flatter curve in sympathy with U.S. Treasuries. The 10-year fell 3.3 basis points to 1.469%.
(Reporting by Fergal Smith;Editing by Alison Williams and Jonathan Oatis)