The Bank of Canada is signaling that it will be the first of the G7 countries to start taking it’s foot off the gas as it will start to slow the pace of the purchasing of Canadian Government Bonds.
The Quantitative Easing program key tool used to keep interest rates low.
The Bank of Canada currently owns a little more than 35% of the market. They will reduce the weekly buying to 3 billion dollars per week and further reduce to 2 billion later this year. As usual, the tapering will be measured and gradual.
One concern is that this tapering ends up tightening financial conditions too quickly. Canada’s stronger economic outlook, and expected early exit from stimulus, have driven up government bond yields faster than their U.S. equivalents. The Canadian Dollar, meanwhile, is the best performing major currency this year
The Bank of Canada is meeting tomorrow for its interest rate decision and the monetary policy report.
I will share an update on that later this week.