10.09.202110:25 Forex Analysis & Reviews: Bank of Canada to raise rates before cutting back bonds

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Bank of Canada Governor Tiff Macklem said he plans to raise interest rates before cutting back government bonds.

The idea is to eventually move to a reinvestment phase, during which the central bank will only buy bonds that are already due, thereby supporting incentives without casting up additional ones. Then, as soon as the bank is ready to taper incentives, it will do so by raising rates.

Macklem also said that the Bank of Canada will have to continue buying bonds worth CA $ 1 billion a week to maintain a stable level of holdings. Reinvestment of maturing bonds will be carried out just on average, in the amount of about CA $ 1 billion per week. Eventually, the reinvestment will end and the bank will stop buying bonds. This would make it reasonable for a rate hike when the need to reduce monetary stimulus arises.

But in the meantime, the Bank of Canada still left its key interest rate unchanged at 0.25% and weekly bond purchases at CA $ 2 billion. This provoked USD / CAD to decline.

The first rate hike is expected in the latter half of 2022, when recession has been overcome. More detailed forecasts will appear after the meeting of Bank of Canada members in October.

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