Bank of Canada Signals Quantitative Easing May Not be Needed Much Longer

The Canadian economy is moving closer to a point where the Bank of Canada will no longer need to continue adding stimulus through its quantitative easing (QE) program, but it is not there yet, Governor Tiff Macklem said on Thursday, Reuters reported. Macklem, in a speech the day after the central bank held its key rate at 0.25%, said it would eventually move to a reinvestment phase, where it bought only enough bonds to replace those that are maturing. This maintains stimulus but does not add new stimulus. When the time comes to start reducing the amount of stimulus, the Bank will likely do so by hiking rates, said Macklem, noting the reinvestment phase would continue until at least the first hike. "As the recovery progresses, we are moving closer to a time when continuing to add stimulus through QE will no longer be necessary. We are not there yet," Macklem said, adding timing would depend on economic developments. "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," he said. The Bank of Canada has said it expects economic slack to be absorbed some time in the second half of 2022, at which point rates could go up. It will update its forecasts in October. Read more.