BANK OF CANADA PLANS TO RAISE INTEREST RATE BEFORE MOVING TO REDUCE BOND HOLDINGS

Sep 09, 2021

By Jeremy Logan

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The Bank of Canada says it plans to increase interest rates before it reduces the size of its government bond holdings, although its timing on the rate hike will depend on the economic recovery.

The central bank is currently purchasing government bonds at a rate of $2 billion per week.

Governor Tiff Macklem says the bank is eventually heading for what it calls a reinvestment phase, where it can limit its bond-buying program to only replace maturing bonds with their proceeds.

During that phase, Macklem says bond purchases would average around $1 billion per week.

He says when the bank reaches the reinvestment phase, it expects to remain there at least until it raises its policy interest rate.

The bank has said that it will keep its policy rate at what it calls the effective lower bound until the economy is strong enough, which it projects will be in the second half of next year.

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