Central bank dramatically expanded assets during the pandemic as part of bond-purchasing program
The Bank of Canada lost $522 million in the third quarter of this year, marking the first loss in its 87-year history
In the central bank’s latest quarterly financial report, it says revenue from interest on its assets did not keep pace with interest charges on deposits at the bank, which have grown amid rapidly rising interest rates
The Bank of Canada’s aggressive interest rate hikes this year have raised the cost of interest charges it pays on settlement balances deposited in the accounts of big banks
That’s while the income the central bank receives from government bonds it holds remains fixed
The Bank of Canada dramatically expanded its assets during the pandemic as part of its government bond purchasing program. Also known as quantitative easing, the policy was part of the central bank’s efforts to stimulate the economy
That expansion in assets is now costing the central bank, as it paid for the government bonds with the creation of settlement balances
Speaking before the House of Commons finance committee last week, Bank of Canada governor Tiff Macklem addressed the expected losses
He said losses don’t affect the central bank’s ability to conduct monetary policy
He noted the size and duration of the losses will depend on the path of interest rates and the evolution of the economy
Following a period of losses, the Bank of Canada will return to positive net earnings
he said
The Bank of Canada is looking to the federal government for a solution to balance its books
While there are a few options available, some economists say the problem before the central bank is largely an accounting one rather than a monetary policy concern
Nojoud Al Mallees · The Canadian Pres
